Should you choose a fixed-rate or a tracker mortgage?
Mortgage rates are at an all-time low, and there’s no sign of them increasing any time soon. This is great news for homeowners, who will probably benefit from low mortgage payments for years to come.
People on tracker mortgages in particular have reaped the rewards of low mortgage rates. People who took out a fixed-rate mortgage in the last few years are typically paying upwards of 4% interest, while many people on tracker mortgages are paying less than 3%.
So does this mean a tracker mortgage is the best option? Not necessarily. The best type of mortgage for you depends on your circumstances, and how much risk you’re willing to take.
Why you should consider a tracker mortgage
A tracker mortgage can be the best option for people who want to pay less now, and are willing to risk their payments rising in the future.
Tracker mortgages follow the Bank of England’s base rate – which is unlikely to go up anytime soon, but there are no guarantees. Some experts think interest rates could fall even further before they start rising again.
Why you should consider a fixed-rate mortgage
Fixed-rate mortgages are all about security. Your monthly payments won’t change for an agreed period, which is great for anyone who wants to know exactly what they’re paying each month.
Traditionally, the added security has meant that fixed-rate mortgages are more expensive (at least to begin with) than tracker mortgages. However, in recent weeks this has started to change.
Fixed-rate deals starting to compete with tracker mortgage rates
In recent weeks, fixed-rate mortgages have started to compete with tracker deals. This is unusual – fixed-rate mortgages are usually more expensive because of the added security they bring.
A quick look reveals that the best tracker mortgage deal, from Nationwide, offers a rate of 2.34% – compared with 1.99% for the best fixed-rate deal (from Santander).
So why is this? Well, it may suggest that mortgage lenders expect to cut their tracker mortgage rates further in the coming months. Or it may simply suggest that lenders are comfortable with offering low fixed rates due to the government’s Funding for Lending Scheme (FLS).
Either way, it means that if you choose a fixed-rate mortgage, you could benefit from the lowest rates AND the security of knowing your payments won’t rise.
However, remember that the very best deals are only available to people with a large deposit (typically 40% or higher) and a good credit rating.