In most cases the fixed rate will be given for a specific period of time -- so, for example, a deal may offer a fixed rate of 5% for 2 years. During this period the rate charged will not change even if the Bank of England base rate or the variable rate of the lender goes up or down. With this kind of deal the mortgage payment made every month will always be exactly the same as long as the deal lasts.



Loan to Value (LTV) Calculations

When taking out a mortgage the LTV calculation needs to be considered. The LTV is the amount that is borrowed in a mortgage in relation to the purchase price of the property. So, if the property value is �300,000 and the borrower takes out a mortgage for �150,000 then the LTV is 50%. This calculation can also be used to work out the percentage of the deposit that will be put down on the property. In the above example the deposit would also be 50%. In general terms interest rates charged will be higher, the higher the LTV percentage. Borrowers whose LTV exceeds certain levels may also be liable for a Higher Lending Charge.

Early Redemption Penalties

A fixed rate deal will be set up to last for a particular period -- this may be for months or years. If the borrower tries to change the deal before it is done (by either changing deal or by paying off the mortgage, for example) then the lender will charge an early redemption penalty as laid out in the mortgage agreement. The charges here will vary according to the deal given. In some cases early redemption clauses are set to last for a period in excess of the term of the deal.

The Advantages/Disadvantages of Fixed Rate Deals

The big advantage to a fixed rate deal is that the mortgage payments will remain constant for a specific period of time. So, if interest rates go up then the borrower will not have to pay for the rate increase as their rate will still be fixed.

The disadvantage here is that it can be hard to predict how the rates market will go. If rates drop, the payments for a fixed rate deal will not drop as well -- they will stay the same. If this happens then the borrower will be paying more than necessary. It may be possible here to change deals but this may result in early redemption charges which will cost more again.

Key Considerations

It�s important to do some research before taking out any mortgage loan. Remember that an individual lender will only be able to give out information on their own deals -- take some time online to search out good offers across lenders.

Conclusion

Individual circumstances also play a part here in terms of how high a deposit the borrower will/can pay. A current offer from a leading building society, for example, will give 5.84% for 10 years but will only deal with a maximum 95% LTV.