Compared to a Fixed Rate deal?
The predictions of a base rate rise have so far been wrong and the prospects of an increase above the current 0.5% level in 2016 is now looking increasingly more unlikely, due to gloomy economic forecasts. Whilst in 2015 a Fixed Rate mortgage was the most advantageous for almost all customers, those looking to remortgage now are questioning if a Tracker would suit them best.
Tracker V Fixed
A Tracker mortgage “tracks” the Bank of England base rate, with lenders fixing their deal, typically, a few percentage points above this figure. The borrower will pay a fluctuating monthly amount in line with the base rate fluctuations.
The interest of a Fixed Rate mortgage will be “fixed” by the lender up front in it’s entirety, so the borrower, for the term of the agreement, will pay the same monthly amount and the same level of interest.
Market indicators now suggest that the base rate will not rise until 2017. So does this put Tracker mortgages back in pole position for a more favourable mortgage product?
Taking a gamble V long-term security
It is important to note that Tracker mortgages can change at any time. They offer more flexibility than a Fixed Rate mortgage, but sometimes customers end up paying more in the longer-term, as their access to cheap Fixed Rate products recedes before they can hop on the band-wagon.
Many customers opt for a Fixed rate simply for peace of mind that their payments will not exceed a certain amount and it gives them long-term security that they can meet costs.
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However, when remortgaging, due to the continued low rates, it is highly worth comparing both a Fixed Rate mortgage and a Tracker mortgage to see which suits you best in the short and long term.
Fixed rates are likely to fall further
Fixed rates are not only linked to the rising and falling of the base rate. They are also determined by the “swap rates”, which are the rates at which lenders trade money with each other. These swap rates are falling due to market conditions so it is likely that Fixed rates will continue to fall, or at least remain low for longer.
When a Tracker could work
Trackers are beneficial for borrowers who want flexibility, such as paying off lump sums in advance of the term end date, with no early repayment charges.
A Tracker could also be financially beneficial IF the base rate remains low for a long period and Fixed Rates stay above the best Tracker deals.
As there is no guarantee with the base rate, it really comes down to whether you want to take a gamble or play it safe.
A professional mortgage adviser can help present all options to you so you can make a clear decision.
Dental & Medical Financial Services can give advice and guidance on all mortgage products and which meets your personal and family needs best. Call Chris today.
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