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With fixed rate mortgages, the borrower can lock into a fixed repayment cost each month over an agreed period of time and know that, irrespective of changing rates of interest, monthly payments will not be affected. Most lenders charge an arrangement fee for the privilege of receiving a fixed rate. Many refer to this fee as a 'booking fee'. The fixed rate borrower can rest in the knowledge that his monthly mortgage repayment will not change for the agreed fixed period.



The longer the fixed rate period, the higher will be the fixed interest rate. Fixed periods of one to five years are the most popular and most readily available, although fixed rates that last for ten years up to twenty five years are often available. At the end of the fixed rate term, the interest rate usually reverts to the lender's prevailing variable mortgage rate. Fixed rate mortgages are usually subject to early redemption penalty charges if the borrower withdraws from the mortgage early, and can continue for a period after the initial fixed rate period has ended.

The disadvantage of a Fixed Rate Mortgage is that if interest rates drop you will be tied into your set higher rate - until the end of the agreement. So you won’t see any decrease in your monthly repayments. At the end of the term borrowers will typically be converted to the Standard Variable Rate.

Adjustable rate mortgages have been available for many years. As the name suggests, the monthly repayment goes up and down in line with the lender's mortgage rate. This means that the borrower cannot predict the monthly cost of the mortgage from one year to the next. This can cause major budgeting problems in a period of increasing interest rates. On the other hand, when interest rates fall, there is less to pay. Many lenders do not alter the rate for existing borrowers until the year-end. With interest rates used as a regulator for the economy, mortgage interest rate change frequently.
A mortgage is interest only  if the monthly mortgage payment does not include any repayment of principal for some period. The payment consists of interest only. During that period, the loan balance remains unchanged. The interest only loans of today are interest only for a specified period, such as 5 years. At the end of that period, the payment is raised to the fully amortizing level. In such case, the new payment will be larger than it would have been if it had been fully amortizing at the outset

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