A fixed rate mortgage is a mortgage where the interest rate is fixed in advance or is set to remain the same for a specified period of time. This differs from loans where the interest rate is not fixed. There are many other types of mortgage loans such as interest only mortgages, adjustable rate mortgages, flexible mortgages, 100% mortgages and variable rate mortgages. All the major mortgage lenders and banks provide some form of fixed-rate loans.

Fixed rate mortgages tend to be more expensive because of their inherent interest rate risk. So long term fixed rate loans will usually have a higher interest rate and may sometimes carry early repayment penalties. This type of mortgage is very popular with people who want a bit of stability or those who don't want any surprises in the future. If the rates go up or down, your repayments are not affected until the fixed rate period ends or until the loan is completely paid off. With an interest rate fixed throughout the term of the loan, a fixed rate mortgage can save you money when interest rates rise because you will continue to have the same rate. But if the interest rate falls you could also miss out on the opportunity to save some money. Some home owners get around this problem by remortgaging to a lower rate of interest when rates are low. If your mortgage has early repayment penalties, remortgaging may not be the best way to save money for you. But if your fixed rate is very high, you could still save some money by remortgaging or refinancing to get a cheaper rate.

If you are on a tight budget or a fixed income, then you stand to benefit from this type of mortgage. Some people like to be able to know exactly what they will be paying throughout the term of the long. This way they can do their budgeting more effectively and they don't have to worry about unexpected rises in payments due to interest rate rises and changes.

If you are not sure whether you could afford to cope with rising interest rates for some time, you can take out a fixed rate mortgage for a number of years; say, 2, 3 or 5 years then switch to a tracker rate when you're more confident about your financial situation. Normally, many banks will offer a fixed rate for a number of years before reverting back to their standard rate. When the fixed rate period is over, you can then change or switch to a cheaper rate of your choice.

These types of mortgages are quite popular during periods when the economy is not doing very well. Many people want the assurance and peace of mind of knowing exactly what they will be expected to pay every month for the coming years. Your bank or lender may be able to advise you on what's suitable for you.

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