July 6, 2009

Fixed Rate Or Tracker Mortgages?

It's the eternal question for all those coming to take out a new mortgage – do you fix or do you track? Both offer advantages but only one is the right choice for the right situation.

The recent increases in rates on fixed rate mortgages have made tracker products look increasingly attractive. In fact figures from moneysupermarket.com show that a borrower with a £300,000 mortgage would pay £100 a month more on an average two-year fixed rate deal, than they would on an average tracker.

However, with many experts predicting that base rates will increase this year, moneysupermarket.com warns borrowers that an increase of one percentage point would reverse the situation.

It has calculated that if rates increase by 2%, then the payments would rise by £76 or £152 on mortgages of £150,000 and £300,000 respectively. And if the base rate goes back to the level it was in October 2008, to 4.5%, then the increases will be a costly £260 or £520 per month respectively.

Louise Cuming, head of mortgages at moneysupermarket.com, says: ”Borrowers should not be seduced by the opportunity to make short term savings by opting for a tracker mortgage deal. They must take the expected base rate rises into consideration right from the start, and make sure that they can still afford repayments when the Bank of England begins to reverse the cuts.

“Anyone thinking about fixing must act quickly. Lenders are increasing rates on an almost daily basis and there is a strong feeling that we have now passed the bottom of the mortgage market.”

Talk to a mortgage adviser about the maths involved in your decision. A new mortgage is all about weighing up the pros and the cons as well as looking to the long-term. You may be able to save more on a tracker now, but will you be able to in two years time? But should you lock in now, or keep reaping the rewards of a low-rate environment? Only a mortgage broker will be able to give you the correct answers you can rely on.

SOURCE: Moneysupermarket.com, 29/06/09

To keep up with the latest news and comments on the mortgage market please visit the Mortgage Broker Blog.

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