Could Now Be The Opportunity To Change To A Fixed Mortgage?

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Could Now Be The Opportunity To Change To A Fixed Mortgage?

By FinanceGuru • Jan 12th, 2009 • Category: Mortgage

Now that we have the base interest rate at a record low, is it the right time to look fixed rate mortgage deals? You may be forgiven for thinking that because rates are next to zero, then now is time to get a fixed mortgage deal. But be wary of remortgaging and take a mortgage broker’s advice before you try to compare today’s mortgage rates on your own!

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Yes, the bank’s lending rate is lower than it has ever sunk before, but at the time of writing, the banks have not said if they will reduce their mortgage interest rates. If they do, that will be the variable rates that will be affected ? the rate they charge to customers that are not on special deals. This will also affect capped rates and discounted mortgages.

But the lenders are not stupid. They know that with base rates at a record low, rates are more than likely to increase in the future ? especially over the duration of a 25-year mortgage. They will be comtemplating whether they think the central banks will hold the low levels for a short time, lower them further or start to put them back up later this year.

If they think there is any possibility of interest rate rises in the next year, then they are not going to tie their own hands by handing out low rate fixed mortgages for 2, 3 or even 5 years. Instead, they will offer low looking fixed rates that switch to the variable rate at the end of 2009 possibly for a long tie in period. Or they will add a a small amount onto the rate and let it run into 2010.

So who out of the many mortgage payers are probably benefiting at the moment from the low base rate? Well the 30% on fixed rates definitely are not ? their fixed rates have stayed where they are. Variable rates, including discounted and capped rates, might have benefited, but with reports that only 19 of the 90 banks passed on last month’s cut fully, there’s a good chance that those on variable rates aren’t seeing great reductions either.

The people seeing reductions at the moment should be those on tracker products, but even some of these have protection for the lender built into them, meaing that if the central bank’s base rate drops below a given level they don’t have to keep tracking it, whilst other lenders have increased the amount above the base rate their new tracker mortgages track.

Does this mean that trackers are the way forward and you should try to compare best mortgage rates for these? Well with capped floors and an climbing gulf between base rate and rate charged, plus the chance base rates will climb over the next couple of years, it is anyone’s guess what is best. It all depends on your financial position and outlook. Are you willing to take the risk of a low rate with trackers, but can afford to pay if they do go up? Do you need to budget closely with a fixed rate mortgage so that you can budget what you will be spending? You really need to speak to a financial advisor who can assist you.

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