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Getting the most out of a fixed rate mortgage

Find out how to make the most of your fixed rate BTL mortgage

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When you're getting a new mortgage, you have the choice of whether it is a fixed rate or a tracker mortgage.

Both have their advantages and disadvantages, and if you're a savvy investor, both can be put to good use. In this blog I'll be looking at how to get the most from the old, reliable workhorse we call the fixed rate mortgage.

Getting the most out of a fixed rate mortgage

Because the main benefit of a fixed rate mortgage is its predictability, it might seem a bit strange that being flexible is the way to get the most out of one.

Fixed rate mortgages can afford long-term security and stable payments, but by taking control, you can make them work for you.

Shop around

You might want to avoid a deal longer than two years – perhaps three for your first mortgage – unless you can find one with no early repayment charges (ERCs) attached (though these products tend to have higher rates).

The idea is to remortgage regularly, so what you're looking for are the best rates with no lender fees. Your first mortgage will see a few additions to the up-front cost, such as valuations and legal fees, but for remortgages many lenders will offer these free of charge.

Make overpayments

If you are able, having a mortgage that allows you to make overpayments will be very handy. The payments you make towards the start of a mortgage consist of more interest than those at the end, which are mostly or all capital. You want to own as much equity in the property as possible in order to get a competitive remortgage deal.

You should be able to make repayments of up to 10% per year on most fixed rate mortgages. Any more and you may be looking at an ERC.

As the end draws near...

When the mortgage term ends your lender will usually bump you onto their SVR, but you can start searching for a new mortgage long before then – between two and six months gives you a lot of breathing room.

It could be that the SVR is less than the fixed rate you're currently paying. If so, you might consider staying on it and continuing to make overpayments. The SVR could realistically change at any time, but you usually shouldn't incur an ERC if you remortgage after the fixed rate period ends.

If going onto an SVR is going ramp up your repayments, you can get a remortgage in motion well before the current one comes to a close. Contact a mortgage advisor to find the best remortgage deal, wait until the fixed period draws to a close to avoid any charges, and switch the mortgage over.

Rinse and repeat

Regularly remortgaging is a tried and tested strategy for staying with the most competitive rates, and if done correctly should serve you well for several years.

There may come a time when you wish to take a step back and let the loan run its course – perhaps you want more flexibility and don't want to keep tying yourself to set-period mortgages every year or two.

'Locking in' to a fixed rate at this stage is always an option. You might also consider a lifetime tracker; with a large bulk of the capital paid off, interest payments will be much smaller than they were at the start of your mortgage. For those months where rates are low, you can continue to overpay and rein your mortgage in a little more each time.

For the latest fixed rate buy to let mortgages and to get a free mortgage quote, visit www.turnkeylandlords.co.uk

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Amelia Vargo is an online marketing executive for CT Capital. Amelia writes for Turnkey Mortgages, Turnkey Landlords, TurnKey Bridging, TurnKey Life and Commercial Trust.

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