The rate of interest you pay is fixed for a defined term usually between six months and five years. Fixed rates have been available for terms of ten, fifteen or even twenty five years, and may be again in the future. At the end of your fixed term the rate will revert to the lender’s Standard Variable Rate.

Fixed rates are attractive because they make it easy for you to plan your monthly outgoings as your mortgage payments will remain constant during the fixed rate period. Taking out a fixed rate protects you from any rise in interest rates.

However you will also miss out on any fall in interest rates. You will be tied to your fixed rate for the period of your deal, so can not simply switch to a better deal.

As a rule, the interest rate will be higher the longer the fixed period. This is because the lender will not want to commit to a very low interest rate if rates could rise above this level during the fixed period.

Some lenders offer stepped fixed rate deals. With these, the rate is fixed at a low level for a short time, for instance one year, and then a slightly higher level for the rest of the period.

Advantages

Fixing your interest rate means that you have a set amount of money leaving your bank account for a specific period of time allowing you to budget for household costs.

The best time to fix your interest rate will be when interest rates are very low or when it looks as though the Bank of England will raise interest rates. This will mean that your payment is protected from any rises and you will save money if the Standard Variable Rate increases beyond your fixed rate.

Disadvantages

The interest rates offered can be less competitive than variable interest rate deals, making this option slightly more expensive than, say, a discounted rate.

You would lose out on any fall in interest rates which take the Standard Variable Rate below the level that you are fixed.

Lenders tie the borrower into the deal with early redemption penalties. This is acceptable to most borrowers provided the redemption period does not extend beyond the fixed rate period.

If interest rates have risen during your deal period and you revert to your lender’s Standard Variable Rate, you must be prepared for a sudden jump in the size of your monthly payments.