Your lender may offer a mortgage where the interest rate is fixed for, say, two to three years or sometimes longer so your monthly mortgage payments stay the same during that period.

After the fixed term is over the interest rate you pay will revert to your lender’s usual variable rate and will then fluctuate in line with interest rate changes. Alternatively, you could then take out a new fixed-rate mortgage.

There are disadvantages to taking out a fixed rate loan, but these are similar to those associated with discounted interest rates. If the loan is paid off or redeemed within a certain period, the lender will charge a redemption penalty, for instance up to six months’ interest on the loan.

Some fixed-rate mortgages are not portable so you have to redeem them each time you move, incurring possible redemption penalties. You may also suffer from having to suddenly increase (sometimes significantly) your monthly payments once the fixed term has ended.

However, this type of mortgage is ideal for those who believe that interest rates are going to rise, or for those who want to know exactly what their mortgage repayments will be for a set period.

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