This is a mortgage rate for
people who require security of payments.
It is designed so you know exactly what your mortgage is
going to cost for a given period of time.
What the lender does is fix the interest rate at a set
level and for the period that the lender decides for
example 2 5 or even 10 years the interest charged on the
mortgage will not change. See the diagram below.
Please note the graph below is not accurate and is for
illustrative purposes only.
It is fair to assume that any lender who offers a fixed
rate to a mortgage customer is taking quite a risk and
for that matter you could assume that therefore there
must be a catch. Well this is wrong the lender is not
taking any risk and as such there is no catch.
The reason that the lender is not taking a risk is
because they buy the money that they lend on a fixed
rate on the money markets. As the lender is going to be
reselling the money on a fixed rate they make sure that
they buy the money on the money markets on a fixed rate
also. They just ensure they get their money at a rate
lower than the one they lend it out on and that is were
they make their profit.