So, do you go Fixed, or do you go Tracker? A question we are asked many times every day!
With a fixed rate, you know that every month your mortgage payment will be exactly the same until the product period ends. Normally this can be two, three, five or ten years. However, you will have a penalty to pay, if you decide to leave during the fixed rate product period. Note that the mortgage product period and the term of the mortgage are two different entities. The fixed rate product period might be for five years, but the mortgage itself might be for twenty-five years. Make sure you understand the difference as after five years you could be moving on to the lenders Standard Variable Rate (SVR), which could be a lot higher (possibly in excess of 5%).
With a tracker rate, this will normally be an interest rate charged in addition to the Bank of England base rate, currently 0.75%, and will move immediately any changes occur. However, most tracker rates have no penalties to leave. So, great if you are planning to move imminently or have bonuses due and want to repay a large lump sum off your mortgage. They can also be cheaper than a fixed rate, but obviously have more risk of increasing rates too.
For those sitting on the lenders SVR – WHY?! The lenders SVR tends to be more expensive than other products available and you should act now as you’re probably paying too much as it is! And lenders can alter their SVR when they choose.
So, in short, the fixed or tracker conundrum is down to personal choice. A number of clients visiting impact are looking for a longer-term fixed rate for certainty and to help manage their monthly budgets. But a number are still happy to take a short-term tracker rate and are confident that rates will not fluctuate too much in the coming months. Either way, there are some good products available with minimal set up costs and it does seem to be a ‘race to the bottom’ with regards to pricing currently.
One thing to think about though – if you are contemplating a tracker rate for now, with the intention of changing to a fixed rate later on, be aware that if rates start to rise you might find that the fixed rates have already increased before the tracker rate even starts to.