Risk vs benefits of variable rate mortgages

As the base interest rate remains at the record low rate of just 0.5 per cent, there is a number of homeowners on variable rate or tracker rate mortgages with a big decision to make.

As a case in The Telegraph showed today, Ms Hibbins from Cambridgeshire is saving £70 per month on her tracker mortgage from Norwich and Peterborough Building Society.

Savings like these are great to help boost the economy. Homeowners feel they are making a good saving each month on their usual monthly mortgage payment and this can relieve the pressure elsewhere.

However, many experts are predicting the base interest rate will be increased by the Bank of England’s Monetary Policy Committee next year as we start to recover from the recession as a country.

Unless you are in a tie-in period with your mortgage, many homeowners now on the standard variable rate (SVR) with their mortgage lender or an agreed variable or tracker rate are going to feel every increase put in place, which in the past has been 0.25 per cent each time.

To get a fixed mortgage rate now, offering some security against interest rate rises, would mean taking an early increase in mortgage repayments right now – and that’s a tough decision. If you think it’s worth hanging on and taking advantage of the lower mortgage repayments, then that’s what you should do but once the base interest rate starts to rise so will the fixed rate mortgage deals.

It comes down to personal opinion and your own financial circumstances, but you have to weigh up the risks and benefits of remortgaging now versus later.



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