Fixed Rate Homeowner Loans

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Gary Hemming

Author: Gary Hemming CeMAP CeFA CeFA CSP

20+ years experience in homeowner loans

Fixed rate homeowner loans allow you to borrow money, securing it against the equity in a property. Fixed rate loans give you certainty that your monthly repayments will remain the same throughout the fixed rate period.

Fixed interest rates are not for everybody. If you have the financial capacity to take a risk and have some flexibility in your monthly budget, a variable interest rate can save you money if the Bank of England base rate drops.

A fixed interest rate, however, will protect you from unexpected increases in the cost of your homeowner loan.

What is a fixed rate homeowner loan?

A homeowner loan is a lump sum loan borrowed from a homeowner loan lender and secured against your property. Fixed rate homeowner loans see your monthly costs remain the same regardless of interest rate rises or drops.

They allow you to borrow a comparatively substantial sum and will likely enjoy a relatively low interest rate.

A fixed rate homeowner loan means your interest rate will remain the same for a prolonged period. This can protect you from volatile spikes in the Bank of England base rate – though it also means that, should the core interest rate drop, you may end up paying more than you would with a variable rate loan.

Ask yourself what you value more – security in your borrowing, or the most cost-effective solution over a sustained period.

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Why choose a fixed rate homeowner loan?

Reasons to consider taking out a fixed rate homeowner loan include the following:

  • You could save money, especially if you want to consolidate multiple debts into one monthly payment – especially credit cards, which usually have much higher APRs than a homeowner loan.
  • Taking out a homeowner loan allows you to borrow much more money than you would if you use an unsecured loan – and you’ll likely get a better interest rate.
  • You will gain access to a lump sum of cash quickly – a homeowner loan can usually be set up within 1-2 weeks.
  • Changes in personal circumstances, such as resigning from your job and starting your own business, may impact your credit score and, by extension, the interest rate attached to a loan.

Read more – Bad credit homeowner loans.

What are the pros and cons of fixed rate homeowner loans?

There are benefits and drawbacks to any financial decision. Take a look at the pros and cons of a fixed rate homeowner loan and decide if this is the best approach for your needs.

Pros of a Fixed Rate Homeowner LoanCons of a Fixed Rate Homeowner Loan
Most lenders will offer a lower base interest rate when offering a fixed rate than they would on a standard variable. This can be especially helpful for debt consolidation, where you will otherwise be paying a wide range of interest rates on different products.A fixed interest rate will not always be the cheapest option. If you’re prepared to take a risk on rate changes. In that case, you may find a lower interest rate on a tracker or specialist variable rate, especially if you enlist the services of a homeowner loan broker.
As a fixed interest rate will not change from month to month, or even from year to year, you’ll know exactly what you need to pay every month. That’s surely more appealing than worrying about whether you will have enough money to meet your financial obligations every time a repayment is due.Fixed rate homeowner loans tend to attract fairly substantial set-up fees from lenders. You may find that as much as £1,000 is added to your total debt, to be repaid over the loan term. You’ll also need to pay an exit fee if you want to repay the loan before the end of the fixed rate period.
You can lock down a fixed interest rate for quite some time on a homeowner loan if you are looking for this consistency. You should be able to agree to around five years of the same interest rate, protecting you from any drastic changes in the global economic picture.Interest rates can shoot up, but they can also drop with little warning. If you take out a fixed interest rate, you may pay more than average in the longer term.
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How do I get the best fixed rate homeowner loan deal?

If you are interested in a fixed interest rate on your homeowner loan, follow these steps to ensure you get the best possible deal.

  • Download your credit report, and ensure it is accurate. A poor or average credit score will not necessarily prevent you from taking out a fixed rate homeowner loan, but it may impact the interest rate you’re offered.
  • If anything on your report is inaccurate, such as a default or missed credit card payment, get this rectified to bolster your score.
  • Make contact with a homeowner loan broker, such as ABC Finance. A broker will unlock deals that are unavailable to the general public and secure the best deal possible.
  • Discuss your unique circumstances with a broker, ensuring you commit to the perfect deal for your circumstances. Your broker will review affordability and different lenders, and confirm if a fixed rate homeowner loan would best serve you.
  • Decide how long you would like to tie yourself into a fixed interest rate. Remember, the longer you commit to a fixed rate, the longer you will either save or lose out on money. Discuss the risks and rewards associated with longer arrangements.

Once you are ready to make your decision, your broker will work with the lender to arrange your homeowner loan. If you promptly respond to any queries from the lender and provide all the documents requested, you should receive your funds within around three weeks.

What happens when my fixed rate ends?

Most lenders will automatically move you onto a standard variable rate when your fixed term draws to a close. If you arrange your homeowner loan through a broker, however, you will be contacted before this happens so you can discuss your options.

If you’re keen to take out another fixed rate, a broker can negotiate this with your existing lender (assuming your account remains in good standing and you have maintained your repayments each month) or find you a better deal with a different lender.

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Can you repay a fixed rate homeowner loan early?

Yes, most fixed rate homeowner loans will allow early repayment.

However, this will not be as simple as paying off the outstanding balance – there will also be an exit fee, so the lender can recoup some of the interest repayments they would otherwise miss out on.

Even with an early exit fee, it invariably works out cheaper to pay off a fixed rate homeowner loan early. Ensure you seek an accurate figure of how much you will need to pay to end your arrangement early. If you think you are likely to repay your loan before the conclusion of its term, consider a variable rate instead.

How long can you fix a homeowner loan for?

Fixed rate homeowner loans come in many shapes and sizes, so you can choose the term that suits you best. This may be as short as one or two years, but the average is five years. In some cases, you may be able to secure a fixed rate for as long as ten years, especially if you approach a specialist lender through a professional homeowner loan broker. Decide if you’re willing to take this risk – remember that interest rates can drop in this time as well as rise, so you could end up paying more than you need to.

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