If you have a fixed rate on your home, doesnt this exempt you from having to really worry about rising rates?

Question

I keep hearing people saying that people will have to pay more now since interest rates are going up .

I dont think the people have fixed rates have to worry, or do they?
cant you switch over easily as well?

Answer 1

Yes, for fixed rate loans, the interest rate doesnt change so those people dont have to worry about rises in interest rates.

Switching over from a variable rate loan can be done, but it is expensive and might not help anyway. If you got a variable rate loan at a low interest rate say 5 years ago, then you havent paid a lot of interest on the mortgage. If you were to switch now, then you have to borrow enought to pay off your existing loan at the new higher rate, then you have to take out a new fixed rate loan at the current rate so your payments would go up anyway. Plus you will have all the closing costs etc., to pay all over again.

Answer 2

Fixed rate mortgages are a great idea, especially if you fix for the whole term, as they tend to do in the USA. However, if you want to fix for 25 years and never worry again, you have to fix when rates are LOW.

A year or two ago, it was freely possible for anyone to fix their mortgage for 25 years at 5% or slightly less. This was the opportunity of a lifetime. rates could go no lower. Building societies HAVE to charge 2.5% simply to cover their costs and 5% was a sheer opportunity.

Unfortunately, in this country, people are silly when it comes to money. They fix for 2 years, switch in and out, incur costs and then find themselves paying a higher rate in the end. I can remember when mortages were 12% 20 years or so ago.

A survey done by the Building Societies Association showed that people only start to fix when rates reach 7%!!!!! This is utterly typical of people in the UK. No matter how obvious it is that to fix for 25 years at 5% would give them TOTAL FREEDOM from ever worrying again in their lives about interest rates, they fail to do it.

I'm not sure what the long-term rates are at the moment, but it's worth a look.

Answer 3

I was under the impression that fee's incurred for switching your mortgage or switching early pretty much negated what would be saved anyway.

Fixed rate mortgages are only fixed for a certain timeframe and even if buying into a new fixed rate mortgage at the end of one term, you can pretty much expect to be paying more to come into line with the current interest rates.

Just bite the bullet...you're gonna be the lenders ***** for a while.

Answer 4

If you're rate is fixed, that's exactly what it means; it won't change. A few years ago, when the prime rate was as low as 4%, people were in a buying and refinancing frenzy. In order to appear competitive, lenders wrote tons of adjustable rate mortgages. The people who really got hit hard were the folks who consolidated debt with home equity lines of credit. The revolving interest makes the interest payment much greater than the rate suggests, and of course, the rates are based on the current prime.

Answer 5

Fixed rates are just that...fixed for the life of the loan. Adjustable Rate Mortgages (ARM) will rise as the interest rate rises.

Answer 6

A fixed rate is exactly as it implies, once you sign the contract with a fixed rate, that is how it stays for the duration of the loan. A variable rate is one that changes with the Prime Interest rate, based on the economy, beware of this one.

Answer 7

If you are on a fixed rate mortgage, then you pay what it has been fixed at for the length of time stated.
Most banks started withdrawing the mortgages once the interest rates started climbing.

Answer 8

Your fixed rate will probably only be for a certain amount of time, say 2 years, 5 years etc. For that period of time you do not have to worry. After that its a bit of a free for all and you will have to worry a bit but there a plenty of options out there.