Should You Switch to a Fixed Mortgage Rate?

With predictions that lenders will increase standard variable rates on mortgages over the next couple of years, some people are investigating the possibility of refinancing their current mortgages into one that carries a fixed rate.  Before making any changes to your current home financing arrangement, you should ask yourself a couple of questions.

First, what are the costs of keeping your current mortgage, assuming that SVRs do in fact increase?  Depending on the amount you owe and the rate you currently pay, the fact is that the expenses associated with refinancing may offset any gains achieved by the move.  Identify any and all costs associated with the refinancing, then compare those costs to what you would save by moving to a fixed rate.

Second, keep in mind that there is always the chance that variable rates may surpass fixed rates for a period of time, then fall back to a level below the fixed rate you secured as a result of the refinancing. Work with a financial professional and project what you would be paying two years, five years, and ten years from now.  Once you have those projections, calculate for the same periods using a fixed rate.  The results of the comparison will tell you if making the change is indeed worth the time and effort.

If your research indicates that refinancing is in order, take the time to compare offers from several different lenders. In addition, make sure all the benefits that are provided with your current mortgage are also found in the new financing.

Doing so will help you identify the best deal available, given the current amount of financing required, the status of your credit rating, earnings, and other relevant factors.

Tags: mortgage