Fixed Rate Remortgage
Fixed rate mortgages and remortgages have been the most popular loan products in the mortgage market for decades, and in spite of the changes in the market, the popularity of fixed rate remortgages has never decreased. Borrowers who have never heard of the term “fixed rate remortgages” will definitely have heard the term “plain vanilla,” which is a popular nickname for these products because they are so easy to understand.
Fixed Rate Remortgage Explained
A fixed rate remortgage is a loan that has a fixed rate of interest throughout its terms. In other words, the interest is fixed at the time of originating the loan and will never change. This product is ideal for homeowners who want to know exactly how much they have to pay every month and want it to remain the same.
The Federal Housing Administration (FHA) was the first to design the fixed rate products. Homeowners who do not like the idea of their monthly payments rising and falling whenever the rate of interest fluctuates usually go in for fixed rate remortgage products.
Repaying Fixed Rate Mortgages
Three major factors such as the rate of the interest, principal, and loan term are taken into consideration while calculating the amount of money that has to be repaid to the lender every month. The terms for fixed rate remortgages can last for 10, 20, or even 30 years.
During the initial years, most of the monthly payment goes toward paying off the interest. When the loan term draws to a close, most of the monthly payment goes toward paying off the principal.
Advantages and Disadvantages of Fixed Rate Remortgages
Borrowers prefer fixed rate remortgages because the rate of interest never chances irrespective of how much the base rate fluctuates, which means that the amount that borrowers will have to pay every month never changes.
If the market rate increases, the borrower’s remortgage rate remains fixed and he/she does not have to pay more. On the downside, if the market rate decreases, the borrower’s remortgage rate does not lower; it still remains fixed, and in this case, he/she will have to pay a higher rate of interest.
If borrowers’ financial situation permits, they can make larger monthly payments and decrease their loan term. They can even make two monthly payments, instead of one, to pay off their mortgage loans faster.
If the fixed rate remortgage loan is more than 80 percent of the current market value of your house, you will have to pay property taxes as well as insurance premiums, in which case your monthly repayment amount will no longer be “fixed”; it will change according to tax rates and insurance premiums. Depending on your lender, you might also have to pay a few months’ taxes and premiums in advance.
To protect themselves from any losses caused by the fixed rate, lenders also include features called early closure penalties into their fixed rate remortgage products. In this case, you will have to pay a penalty if you choose to pay off your loan too early.