Fixed rate mortgages have constant instalments and interest rates. These do not change during the whole mortgage period. Other types of mortgages are adjustable mortgages and hybrid mortgages. Adjustable rate mortgages have interest rates and monthly instalments that change during a mortgage period. Hybrid mortgages start as fixed rate mortgage but later have their interest rates or instalments varied according to the agreement between the lender and the buyer. Fixed rate mortgages allow the buyer to plan his expenditure on mortgage ahead of time. However, they are so rigid that they do not take into account changes in inflation or variations in incomes of the lenders.
Fixed rate mortgages are usually paid for after every month. A thirty-year loan will be paid for twelve times in a year and have a total of 30 instalments. Before all payments are paid for in full, the owner will not claim absolute ownership of property. The property still remains a collateral for the lender that issued the loan. You may shorten the duration of payment to 10, 15, or 20 years. Remember that for every given principle, the shorter the duration of loan repayment, the larger each instalment will be. You should shorten the length only if you are confident that you will be able to afford the monthly repayments. Mortgage arrears can be a big problem for people who have to pay large monthly instalments.
You can also shorten the duration of your fixed mortgage repayment by paying biweekly rather than making monthly instalments. A 30 year fixed loan will have less than 30 instalments if paid biweekly. Because biweekly repayment method is a special kind of mortgage repayment system, it is treated differently by mortgage lenders. Lenders usually charge for biweekly loans. The loan also attracts registration fees that differ from one lender to the other. You must also pay debt charges every time you pay an instalment. All these fees are never as significant as to make the loan more expensive than the monthly repayment system. However, you must ensure that you are fully prepared for the charges. The biweekly loan, like monthly instalments, are usually paid for from the savings or checking accounts of the borrower.
Rates of fixed rate mortgages are determined before the loan is issued and remain constant until completion of repayment. This implies that the rates have are carefully assessed before being applied. Inflation and drastic changes in house prices can cause lenders significant financial losses if the rates are to not adequate. Mortgage lenders get their money from the savings of their account holders and from their own investments. They may also borrow the money from other financial institutions. The rate of borrowing from other banks is called the swap rate. All these determine the rate of the fixed mortgage. The Bank of England also plays a significant role in mortgage rate determination. The Bank of England strongly considers runaway house prices when determining mortgage rates. If low rates are causing a fall in house prices, then the bank will ask lenders to increase the rate.