If you're getting a new mortgage, or thinking of re-mortgaging, it's always worth considering whether to get a fixed rate.
You're probably aware of the fact the Bank of England has left interest rates frozen at 4.75% for eight months running now. Homeowners with variable rate repayment mortgage deals are likely to be the most relieved a welcome respite after five increases in just eighteen months!
However, opinions on the outcome of the next interest rate meeting on the 9th May are not as straightforward (they rarely are). Economists seem to be split in their views of whether rates will go up or down after the general election.
This leaves homeowners wishing to re-mortgage with a difficult decision. Should you opt for a fixed-rate deal, and benefit if rates should increase, or a variable rate deal, benefiting should rates fall? (You can find a five-minute guide to mortgages here.)
The decision is not made any easier by the fact that current Best Buy fixed and variable rate deals are comparable (two- and three-year Best Buy deals are available for less than 5%, plus fees of ca. £400). But there are a couple of questions you could ask yourself that could make your choice a little more straightforward.
- Budget are you on a tight budget? If so, a fixed rate (even a slightly more expensive one) is probably the way to go. Fixed payments allow you to plan where your money goes, preventing unpleasant surprises from interest rate rise and probably help you to sleep better at night.
- Risk how much risk are you prepared to take? Are you willing to risk choosing a variable rate loan, and not mind the consequences should interest rates rise? If you were to choose a fixed-rate loan and rates were to fall, would that make you miserable? Choose the level of risk you're comfortable with as long as you can afford it.
Remember to check out the redemption penalties too and be aware that although interest rate rises are usually fully reflected in a variable rate mortgage, you rarely benefit fully from an interest rate drop 0.25% is often reduced to just 0.15%. The only exception to this is in the case of tracker mortgages, where full increase and decreases are implemented.
Finally, the most important thing to be aware of, whichever deal you choose is how flexible it is. Of course we should all want the best deal we can find, but remember, even the cheapest mortgage in the world is still accruing interest daily. Aim to pay off this 'millstone' as quickly as possible and a flexible mortgage that allows overpayments will make this much easier.
You can find flexible mortgages for less than 5% in our Mortgage Centre | Pay Off Your Mortgage In Five Years
