Fixed Rate or Tracker? Why not the best of both worlds?
June saw more mortgage lenders cutting their fixed rates after swap rates – which show the market’s expectations of future interest rates – fell. Fixed rates are ideal for borrowers keen to protect against rate rises. But you might still be better off with a tracker rate.
With five-year mortgages as low as 3.99%, fixed rates have become more attractive to property owners because the gap between tracker rates and fixed rates has narrowed. Recent research shows that the gap has fallen from 2.5% in March to 1.5% in June.
But you should always take advice based on your personal circumstances. Choosing a fixed rate might not work out cheapest for you. Trackers and discounted variable rates are still a cheaper option, at least in the initial months of the mortgage. And they will stay that way if the Bank Base Rate (BBR) stays at 0.5% for the next few years. However, the latest Monetary Policy Committee (MPC) minutes for June reveal that one of the MPC members voted to increase BBR because of fears that inflation is too high.
You might instead choose to hedge your bets with a combination of fixed and variable rates. Nigel Bedford of Largemortgageloans.com has a client who is looking to borrow £1.7m with 60% on a five-year fixed rate, which includes early repayment charges (ERCs), and 40% on a ERC-free variable rate.
“This gives him the best of both worlds: medium-term security with the five-year fix but total flexibility with the variable element, matching his plan to reduce the mortgage by £700,000 within the first five years or sooner,” explains Bedford.
Indicative rates for the loan are a variable rate of 2.7% – with an unlimited overpay and redraw facility – and a five-year fixed rate of 4.5%.
If this is something you might be interested in, call us today on 020 7519 4900 or request an online quote
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on Tuesday, July 6th, 2010 at 11:48 am and is filed under Commentary.
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News & Views:
Fixed Rate or Tracker? Why not the best of both worlds?
June saw more mortgage lenders cutting their fixed rates after swap rates – which show the market’s expectations of future interest rates – fell. Fixed rates are ideal for borrowers keen to protect against rate rises. But you might still be better off with a tracker rate.
With five-year mortgages as low as 3.99%, fixed rates have become more attractive to property owners because the gap between tracker rates and fixed rates has narrowed. Recent research shows that the gap has fallen from 2.5% in March to 1.5% in June.
But you should always take advice based on your personal circumstances. Choosing a fixed rate might not work out cheapest for you. Trackers and discounted variable rates are still a cheaper option, at least in the initial months of the mortgage. And they will stay that way if the Bank Base Rate (BBR) stays at 0.5% for the next few years. However, the latest Monetary Policy Committee (MPC) minutes for June reveal that one of the MPC members voted to increase BBR because of fears that inflation is too high.
You might instead choose to hedge your bets with a combination of fixed and variable rates. Nigel Bedford of Largemortgageloans.com has a client who is looking to borrow £1.7m with 60% on a five-year fixed rate, which includes early repayment charges (ERCs), and 40% on a ERC-free variable rate.
“This gives him the best of both worlds: medium-term security with the five-year fix but total flexibility with the variable element, matching his plan to reduce the mortgage by £700,000 within the first five years or sooner,” explains Bedford.
Indicative rates for the loan are a variable rate of 2.7% – with an unlimited overpay and redraw facility – and a five-year fixed rate of 4.5%.
If this is something you might be interested in, call us today on 020 7519 4900 or request an online quote
This entry was posted on Tuesday, July 6th, 2010 at 11:48 am and is filed under Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.