Fixed Rate Mortgages Vs Tracker Mortgages – Know your facts
Due to the fact that the current Bank of England base rate is at an all time low, many people are currently torn between the low interest rate they could obtain by choosing a Tracker Mortgage and the security and peace of mind that is often provided by a Fixed Rate Mortgage.
If you are in the process of trying to decide between a Tracker and a Fixed Rate Mortgage, there are some simple facts which you should understand...
A Fixed Rate Mortgage
Put simply, a Fixed Rate Mortgage means fixed monthly Mortgage repayments for a specific time. Most often you can find Fixed Rate Mortgage being offered for 2 or 5 years, but some lenders do still offer them for 10 years
In the current market place, Fixed Rate Mortgages will often be offered at a higher interest rate than a Tracker Mortgage.
With the security of a Fixed Rate Mortgage you can be certain that if interest rates increase, you will not be affected, but similarly if interest rates drop, you will not benefit
A Tracker Mortgage
As the name suggests the interest rate of a Tracker Mortgage will follow or track the Bank of England base rate, moving up or down in line with any base rate movements. Given that these types of Mortgages have a variable rate, you could find with a Tracker Mortgage that your monthly payments could fluctuate
Due to the base rate being so low at the moment, Tracker Mortgages often result in the lowest monthly payments right now. However, that may not always be the case
Questions you may wish to ask yourself when comparing Fixed Rate Mortgages with Tracker Mortgages
There is absolutely no substitute for getting independent financial advice from a qualified Independent Financial Adviser. The correct Mortgage choice for you will depend upon your individual circumstances and requirements. However, if you just want to get to grips with the types of questions you need to ask yourself when comparing these types of Mortgage, look no further...
Consider the interest rate of the Fixed Rates on Offer with the Tracker Mortgages on offer.
You may wish to find out the numerical difference between the two rates and then ask yourself the following questions:
Is there a big difference between the two rates?
What difference does it make to your monthly repayments?
Do you think the Bank of England Base Rate will increase to the point that your Tracker Mortgage would be at the same rate or higher than the Fixed Rate on offer?
If you can, how long do you think it will take for the Base Rate to increase by this much?
Do you think the Base Rate will go up by that amount within the same period you would have a Fixed Rate Mortgage for?
Compare the difference Fees and penalties
Take a look at the fees associated with the two different styles of Mortgage and ask yourself this:
Are the set up fees different?
If one is carrying a higher fee, does this fee outweigh the saving I would make on that deal?
How long am I tied in for with either deal?
What penalties will I face if I come out of either deal early?
Think about your situation
Your decision should be reflective of your needs. You may wish to ask yourself the following questions:
What are my financial priorities at the moment?
Which type of Mortgage deal do I feel will best help me to meet my financial goals?
Do I need the security of a Fixed Rate Mortgage?
If I take a Tracker Mortgage, can I cope if my payments fluctuate?
Knowledge is Power
The more informed you are of the consequences of taking either type of Mortgage the more likely you are to put yourself in the right financial position. As such, you now need to do some research. Why not consider researching the following:
The Bank of England Base Rate
Your understanding of this will pay a big part in the decision you make so why not find out the answers to the following questions:
Who decides upon the rate?
When is this decision made?
How often can they change this rate?
Historically, what has it been at its highest and lowest?
Historically when this rate has been changed, what amount is it changed by on average?
What influences changes in this rate?
What do my friends, family or colleagues think about when and by how much this rate might change by?
What opinions do experts in the media have about changes in this rate?
Your Monthly Mortgage Repayments
Consider your monthly Mortgage repayments and ask the following:
What is the maximum monthly Mortgage payment I can comfortably afford?
If I go onto a Tracker Mortgage how much would the Bank of England base rate need to increase by before I would be charged this amount? (This is something your Mortgage lender can easily work out)
How quickly do I feel the Bank of England Base Rate will go up by this amount?
We hope the above questions give you a starting point when comparing these different types of deals, but if you want to speak to an expert who can answer all these questions and give you great Mortgage advice, speak to an Independent Financial adviser
If you are in the process of trying to decide between a Tracker and a Fixed Rate Mortgage, there are some simple facts which you should understand...
A Fixed Rate Mortgage
Put simply, a Fixed Rate Mortgage means fixed monthly Mortgage repayments for a specific time. Most often you can find Fixed Rate Mortgage being offered for 2 or 5 years, but some lenders do still offer them for 10 years
In the current market place, Fixed Rate Mortgages will often be offered at a higher interest rate than a Tracker Mortgage.
With the security of a Fixed Rate Mortgage you can be certain that if interest rates increase, you will not be affected, but similarly if interest rates drop, you will not benefit
A Tracker Mortgage
As the name suggests the interest rate of a Tracker Mortgage will follow or track the Bank of England base rate, moving up or down in line with any base rate movements. Given that these types of Mortgages have a variable rate, you could find with a Tracker Mortgage that your monthly payments could fluctuate
Due to the base rate being so low at the moment, Tracker Mortgages often result in the lowest monthly payments right now. However, that may not always be the case
Questions you may wish to ask yourself when comparing Fixed Rate Mortgages with Tracker Mortgages
There is absolutely no substitute for getting independent financial advice from a qualified Independent Financial Adviser. The correct Mortgage choice for you will depend upon your individual circumstances and requirements. However, if you just want to get to grips with the types of questions you need to ask yourself when comparing these types of Mortgage, look no further...
Consider the interest rate of the Fixed Rates on Offer with the Tracker Mortgages on offer.
You may wish to find out the numerical difference between the two rates and then ask yourself the following questions:
Is there a big difference between the two rates?
What difference does it make to your monthly repayments?
Do you think the Bank of England Base Rate will increase to the point that your Tracker Mortgage would be at the same rate or higher than the Fixed Rate on offer?
If you can, how long do you think it will take for the Base Rate to increase by this much?
Do you think the Base Rate will go up by that amount within the same period you would have a Fixed Rate Mortgage for?
Compare the difference Fees and penalties
Take a look at the fees associated with the two different styles of Mortgage and ask yourself this:
Are the set up fees different?
If one is carrying a higher fee, does this fee outweigh the saving I would make on that deal?
How long am I tied in for with either deal?
What penalties will I face if I come out of either deal early?
Think about your situation
Your decision should be reflective of your needs. You may wish to ask yourself the following questions:
What are my financial priorities at the moment?
Which type of Mortgage deal do I feel will best help me to meet my financial goals?
Do I need the security of a Fixed Rate Mortgage?
If I take a Tracker Mortgage, can I cope if my payments fluctuate?
Knowledge is Power
The more informed you are of the consequences of taking either type of Mortgage the more likely you are to put yourself in the right financial position. As such, you now need to do some research. Why not consider researching the following:
The Bank of England Base Rate
Your understanding of this will pay a big part in the decision you make so why not find out the answers to the following questions:
Who decides upon the rate?
When is this decision made?
How often can they change this rate?
Historically, what has it been at its highest and lowest?
Historically when this rate has been changed, what amount is it changed by on average?
What influences changes in this rate?
What do my friends, family or colleagues think about when and by how much this rate might change by?
What opinions do experts in the media have about changes in this rate?
Your Monthly Mortgage Repayments
Consider your monthly Mortgage repayments and ask the following:
What is the maximum monthly Mortgage payment I can comfortably afford?
If I go onto a Tracker Mortgage how much would the Bank of England base rate need to increase by before I would be charged this amount? (This is something your Mortgage lender can easily work out)
How quickly do I feel the Bank of England Base Rate will go up by this amount?
We hope the above questions give you a starting point when comparing these different types of deals, but if you want to speak to an expert who can answer all these questions and give you great Mortgage advice, speak to an Independent Financial adviser
