FIXED VS VARIABLE RATE MORTGAGES FOR CONTRACTORS: WHICH IS BEST?

Fixed vs Variable Rate Mortgages for Contractors: Which Is Best?

Fixed vs Variable Rate Mortgages for Contractors: Which Is Best?

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When choosing a mortgage, contractors must decide between a fixed or variable interest rate. Each option comes with its own benefits and risks, and the right choice depends on your financial situation and risk tolerance.


1. What Is a Fixed-Rate Mortgage?


A fixed-rate mortgage locks in your interest rate for a set period—usually 2, 3, or 5 years. Your monthly repayments remain the same throughout this term, regardless of market fluctuations. This is ideal for budgeting, especially if your income varies slightly between contracts.


Benefits:





  • Predictable monthly payments




  • Protection from interest rate rises




  • Easier to plan your finances




Drawbacks:





  • Less flexibility if interest rates fall




  • Early repayment charges if you switch deals




2. What Is a Variable-Rate Mortgage?


With a variable-rate mortgage, your interest rate can go up or down based on the lender’s standard variable rate (SVR) or the Bank of England base rate. Your monthly repayments can change during the mortgage term.


Benefits:





  • Potential to save if interest rates fall




  • Some deals offer lower initial rates




Drawbacks:





  • Payments could increase if rates rise




  • Harder to budget with fluctuating repayments




3. What Should Contractors Consider?


Contractors often experience periods of high and low income. A fixed-rate mortgage can offer peace of mind by ensuring steady payments, even if your contracts change. On the other hand, if you’re confident in your ability to handle changing rates and want to take advantage of potential savings, a variable-rate mortgage could work for you.


4. Seek Specialist Advice


Choosing the right mortgage type is easier with the help of a contractor-friendly broker. They can assess your income pattern and help you decide whether stability or flexibility is more important for your current situation.


Conclusion


Both fixed and variable-rate mortgages have their pros and cons for contractors. If you value stability and predictable payments, a fixed rate may be ideal. If you’re comfortable with some risk and want to benefit from rate drops, consider a variable option.




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