Fixed Mortgage or Risk Variable?

by Mark Johnston

Deciding which mortgage to go for has always been a bit of a gamble. Variable, tracker, discount, fixed, the market is awash with different mortgages for every requirement under the sun.

One of the most asked questions though is which mortgage should I go for. The stock answer from a mortgage broker tends to be “if depends on your circumstances”. But in reality it depends on what you want to do, how much flexibility you want but most importantly what the interest rates are going to do. Unfortunately, this has always been a bit of a gamble.

Some borrowers will opt for a variable rate mortgage like a tracker or their lenders standard variable rate. These give the best value if the base rate is stable, especially at the moment with interest rates at an all time low of 0.5%.

Now, others will want to protect themselves from the uncertainly of interest rate rises and will opt for a fixed rate. The problem with these two options is that if the rates don’t go in borrowers favour, they could end up well out of pocket. The decision has never been hard, top fix or not to fix.

Fixing may well seem the most sensible approach, the base rate is at a low for over 18 months, at 0.5% it can only go one way, and that is up. Taking out  one of the attractive fixed rate offers at the moment would mean that borrowers would know exactly how much they would be paying back each month for a set period of time.

HSBC and its sister company First Direct are topping most tables at the moment. They have a 5 year fixed rate mortgage for 3.99% and a fantastic fee of just £99 which is great when other providers are charging upwards of £1,000. The Post Office has a good deal for those that don’t want to tie themselves into a deal for such a longtime. They are offering a two year fixed rate product for £3.94% (APR 4.2%) with a £995 arrangement fee.

Others seem to think that fixed rate mortgages are still too expensive and with many experts predicting a 0.5% base rate for much of 2011, taking out a variable rate mortgage is the way to go. Although a tracker mortgage leaves borrowers open to base rate changes it also provides the great level of value at the moment.

First Direct have a two year tracker mortgage which is priced at just 2.19% at the moment, again with a low fee of £99. the only problem with these types of mortgages is that they generally only cater for those with a lot of equity in their homes or for those lucky enough to have a deposit of around 40%. Those with less should expect to pay more.

Norwich and Peterborough has a two year tracker at the moment for 2.95% which only requires a 15% deposit as the loan to value is 85%.

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