Homeowners have had it good for some time now. In January 2007 the official borrowing rate was at 5.5% by January 2008 this had fallen to just 1.5% and is now holding steady at the record low of 0.5%. All of this means that anyone remortgaging or on a variable rate mortgage will have noticed at steep decline in their monthly payments.
This wonít last forever. Banks have already begun to look beyond low interest rates and have priced up their mortgages already. So, is now the time to fix your mortgage or should you hold out for a tracker?
In June best buy mortgages on a three year fix fell to 4.39%. Apply today however and this same product will charge 4.59%. It may not sound like a major difference but on the average mortgage this could mean as much as ?? more over the course of a year.
With rates creeping steadily upwards it could be argued that now is the time to fix your mortgage before payments head higher. Thereís a natural advantage to fixed rate mortgages and itís that you know what youíll be paying in two or three yearsí time. This certainty brings peace of mind but itís also important to factor in what the mortgage
market will look like then.
Home Loan Crystal Ball
Opinions about the housing and mortgage market vary greatly. The consensus view about the mortgage market is however that the Bank of England base rate will increase in the coming years and that banks will continue to try and rebuild their balance sheets by making loans expensive. If you buy into this view then the chances are you can be sure that youíre next mortgage is likely to be expensive compared to your current deal.
With the cost of fixed rate mortgages still heading north, examining a variable option could be worthwhile. A variable mortgage such as a tracker will allow you to take advantage of the low base rate for the coming months before switching to a fixed rate deal if the base rate rises. Tracker deals can be obtained at rates as low as 2.74% today, this would represent a big saving on the average fixed deal. Application fees on tracker deals also tend to be lower than on fixes. If rates do begin to rise sharply whilst on a tracker, itís important to note that there will be charges for switching to a different product.
Timing is everything when it comes to mortgages. Take out a product at the wrong time and it could cost you thousands of pounds. Itís safe to say that few, if any of us, get these timings precisely right. There is however a compelling argument to continue
tracking the base rate for the coming months before taking out a fix. Whatever you decide, itís important to understand the product you sign up for and have a clear idea of the costs involved.
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