Should I take out a fixed-rate mortgage?

Deciding which type of mortgage to take out can be a difficult decision - especially taking the recent base rate cut into consideration. Your choice of mortgage can potentially save you a lot of money in the long run - or it could cost you more, depending on which way the base rate goes.

Fixed-rate mortgages are a popular choice amongst homeowners, since they ensure you consistently pay the same amount over a set period of time. But are they necessarily a good choice in current housing market conditions?

Advantages of a fixed-rate mortgage

• Offers security. You know how much you will pay towards your mortgage every month - unlike variable-rate mortgages, which are liable to change.

• Increases in the base rate will not affect your mortgage - meaning you could save money compared with a variable-rate mortgage.

Disadvantages of a fixed-rate mortgage

• You will normally have to pay a mortgage arrangement fee. These are normally a few hundred pounds, but for the very best mortgage deals you may have to pay over £1000.

It is common to spread the mortgage arrangement fee across your mortgage payments - but this will of course mean higher monthly payments.

• Just as it is possible to save money, a fixed-rate mortgage could potentially end up costing you more than if you had chosen a variable-rate mortgage. Even if interest rates fall, your mortgage payments will remain the same.

Fixed-rate mortgage in the current housing market

With the base rate recently falling to 3%, and several signs pointing towards further cuts, fixing your interest rate at a level above the current base rate may seem illogical. However, while a fixed-rate mortgage may cost you more in the short term, it’s important to remember that the base rate could go up again.

In short, it’s impossible to predict with 100% certainty what the base rate will do, so choosing a certain type of mortgage is always a gamble, whatever your decision.

Even if you pay more than would have on a variable-rate mortgage for the first few months, a fixed-rate could save you money in the future. Your decision on a fixed-rate mortgage will depend on whether or not you think that may be the case - and how able you are to cope with any changes in your monthly payments.

This article was written by Melanie Taylor, a mortgage expert for Think Money. If you are thinking about getting a mortgage click here.

Which is best Adjustable or Fixed Mortgage?

There may not be a wrong or right answer to the question above. Both options have their good and bad points. Before you even look at houses, you should take a few minutes to look into both and what they have to offer you and your family.

If you are planning on living in your new home for less than 5-7 years, an adjustable mortgage is absolutely worth considering. Starting you out at a lower interest rate can definitely save you some of your hard earned cash every month. An ARM (Adjustable Rate Mortgage) also will put you in consideration for a larger mortgage, thus allowing you to splurge on that larger home you are wanting. Take time to run the numbers through a mortgage calculator to see where the payments will end up.

However, ARM’s can definitely have a down side as well. After the honeymoon period is over, the interest rates can spike well over 10.00% over time. This can cause your once coveted dream rate to become your worst nightmare.

If you decide you want to play it safe, a fixed mortgage is right up your ally. Giving you complete control, you know exactly how much you will pay every month for the life of your loan. This allows you to budget your finances and plan for your future much more efficiently.

Although a fixed mortgage may be the simplest option, it could bring a little headache down the road. When rates have dropped and you are still stuck with your trusty rate for another 20 years, you may want to consider refinancing. This will require more paperwork and additional costs associated with appraisal and closing. You also will have no initial rate cuts as you would with an ARM.

Take time to run the numbers through a
mortgage calculator to see where the payments will end up. Your best option is to take an honest look at your budget and set a definite amount you don’t want to exceed. This will help when it comes time to pick out a beautiful home while keeping your feet planted firmly on the ground. Whether you decide an ARM or Fixed mortgage is best is pretty much just a personal preference.

Guest Post by David Kent of Buyers Agency, Real Estate Agents by visiting www.buyersagent.net