Tracker or fixed mortgage?

July 4, 2009 by Brendan

Advice & Tips

Those searching for a new mortgage or to remortgage will be asking the question, should they look for a tracker mortgage or a fixed rate mortgage?

Over the last few weeks, we have reported almost every week one or two major lenders who have increased the costs of their fixed rate mortgage range whereas many tracker deals are at an all time low thanks to the 0.5 per cent Bank of England base rate, making tracker mortgages appear much more attractive than fixed rate mortgages right now.

According to moneysupermarket.com, the average two year fixed rate is currently 4.04 per cent where the average racked is currently 3.31 per cent. This is a significant saving for many mortgages, although it would take only a 1 per cent rise in the BoE base rate to change the levels.

Louise Cuming, the head of mortgages at moneysupermarket.com, said: “Borrowers should not be seduced by the opportunity to make short-term savings by opting for a tracker mortgage deal. They must take the expected Base Rate rises into consideration right from the start, and make sure that they can still afford repayments when the Bank of England begins to reverse the cuts. Anyone thinking about fixing must act quickly. Lenders are increasing rates on an almost daily basis and there is a strong feeling that we have now passed the bottom of the mortgage market.”

Whether or not this is true, and how much longer tracker mortgages will continue to remain cheaper than fixed rate mortgages is anyone’s guess and one that people will have to weigh up for themselves whilst taking into account how much of a rise they could afford on their mortgage.

A good mortgage advisor will be able to help borrowers calculate payments, weigh up the risk for their own circumstances and find the best deal for them.