How Do I Decide Between a Fixed and Tracker Mortgage?
The right choice between a fixed or tracker mortgage will depend on your own circumstances rather than simply which rate looks cheapest today. Your mortgage balance, monthly budget, how much financial headroom you have and how comfortable you are with changing payments can all make a difference.
For some borrowers, certainty is the priority. A fixed-rate mortgage means knowing exactly what your monthly payment will be for the length of the fixed period. That can make budgeting easier and removes the risk of your payment increasing if the Bank of England raises Base Rate.
For others, flexibility may be more important. A tracker mortgage can sometimes start at a lower rate than a fixed deal and, if Base Rate falls, your mortgage payment may reduce as well. The trade-off is that your payment can also increase if rates move the other way.
The size of your mortgage also matters. A relatively small movement in interest rates can have a much bigger impact on someone with a £400,000 mortgage than somebody borrowing £100,000. Looking at the actual monthly payment difference between a fixed and tracker deal can therefore be more useful than simply comparing the headline rate.
Fees should also be taken into account. A mortgage with a lower interest rate is not automatically the cheapest option if it comes with a large arrangement fee. Cashback, free valuations, legal incentives and product fees can all affect the overall cost of the mortgage.
Early repayment charges are another important consideration. Most fixed-rate mortgages have penalties if you repay or switch the mortgage during the fixed period. Some tracker mortgages have no early repayment charge, although this depends on the individual product. For borrowers who may move home, repay a large lump sum or want the flexibility to change deals, this can be an important difference.
It is also worth considering how long you expect to keep the mortgage. Someone planning to move in the near future may look at their options differently from somebody who expects to stay in the property for many years.
If your existing mortgage deal is coming to an end, getting remortgage advice can help you compare fixed and tracker options across the market and understand the difference in monthly payments, fees and potential future costs.
There is no way to know exactly where interest rates will go next. Trying to predict the perfect time to fix or move onto a tracker can be difficult because mortgage rates can change before the Bank of England makes its next decision. The aim should therefore be to choose a mortgage that works for your circumstances now and that you would still be comfortable with if interest rates moved in either direction.
A mortgage adviser can compare the available deals, calculate the overall cost and explain how different changes in Base Rate could affect your monthly payment before you make a decision.
If your current mortgage deal is coming to an end and you are unsure whether to choose a fixed or tracker mortgage, I can compare the options available and explain the difference in monthly payments and overall cost. I provide mortgage advice in Romford, Essex and across the UK via Microsoft Teams.
Your home may be repossessed if you do not keep up repayments on your mortgage.
