5-year fixed rate mortgages
What you should know about 5-year fixed rate mortgages
A greater period of repayment security can be gained by opting for a longer term fixed rate. As well as security, with a longer term fixed rate you do not need to search for a new mortgage every couple of years, as you might do with a shorter term fixed mortgage.
The risk with a longer term fixed rate is that if rates drop, you could end up paying over the odds. In this situation you may decide you want to change your mortgage before completing the initial fixed rate term to save money. If you do, your bank or building society may charge you a fee that lenders call an early repayment charge. It is wise to bear these charges in mind when you are deciding which longer term fixed rate mortgage to take, as they might be very expensive, particularly in the early years.
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What is a Fixed Term Mortgage?
Fixed term mortgage is a type of mortgage that has a fixed duration of time. A Mortgage is a loan taken for the purchase of real estate, and is secured by the property being purchased with the amount. That is, the property being bought with the loan serves as collateral for the loan. Mortgages are of different types with open or fixed terms, fixed or variable interest rates. Most fixed term mortgages permit the payment of a fixed interest rate during the term chosen by the customer, which could be ten, fifteen years or more. Also in most instances fixed term mortgages are provided at a rate of interest lower than open term mortgages. In case the mortgage is being paid before the stipulated time, an interest penalty is charged.
A fixed term mortgage is just another name for a fixed rate loan since both have identical features and are actually quite flexible in terms of repayment. Both are the reverse of open term loans or variable rate mortgages in which interest rates fluctuate as per the market.
While the interest rates of fixed term mortgages remain the same throughout the stipulated tenure, the interest rate varies from company to company, or bank to bank. Hence, people opting for fixed term mortgages shop around to get the lowest possible interest rate. Despite their name, they are not rigid, and offer flexibility of down payments and other payment options.