Interest rate lower than fixed?

Waterwave

Anyone know the answer please? Let’s say we sign up to a fixed rate of 5.5% on a repayment mortgage. Let’s now say that in year 2, the mortgage interest rate drops to 2% and stays there for the rest of the term. Does that mean we’ll overpay?

la531983

Easier to explain with an example but no, you wont be overpaying.

For example, if you agree to a five year fixed rate at 5.5%, the interest rate on your mortgage is 5.5% for the full duration and interest is calculated daily at that rate for five years, it doesnt matter what happened to Bank of England interest rates or anything else in that five years, your interest rate is 5.5%.  This is why people fix, to ensure payments arent going up or down and helps to budget.

Interest rates could go up to 20%, or down to 2%, but your rate remains 5.5% for five years.  You either win or you lose.   

If you want to gamble sign up to a tracker mortgage but if rates go up, you pay more. If rates go down, you pay less.