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Financial Planning | Fixed rate or tracke ...Fixed rate or tracker mortgage - which should one go for?Total Word Count: 902 Author Rating: NA  Rate this article
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When it comes to choosing the type of interest for your mortgage one always wonders what would be the best option for them.
When it comes to choosing the type of interest for
your mortgage one always wonders what would be the best option for them. There is no straightforward answer to this
question and it depends on many parameters. This article aims to help you
understand the implications and make an informed choice.
There are a lot of your own needs and circumstances that determine what type of interest rate is better for you as well as market factors which determine which interest rate type you should go for. Your view of the Base rate – This is perhaps a very important parameter. If you think the base rate will go up then you might as well be on the fixed interest rate and if you think the rates will remain where they are or will go down you might be better off on a tracker. As a mortgage professional I am often asked the question of what I think will happen to the Base rate – no matter what I think the truth remains that my guess is only as good as yours. Size of the mortgage – if the amount borrowed is significantly higher and you chose a tracker mortgage and in this event if the Base rate goes higher the amount you need to pay extra each month will become significantly higher and because of this those with a large mortgage may like the comfort of a fixed mortgage. Comparing the best of both types – Irrespective of what interest rate type you decide to take its always best to compare the best rates available on a fixed basis as well as those available on a tracker. The banks are usually smarter than the customers. They price the interest rates smartly. For instance when this article is written the bank of England Base rate is 0.5% and the banks offer tracker rates that are at least 1% cheaper than the fixed rates. For instance if in your circumstances the best tracker rate is 3.29% the best fixed rate is 4.39% Under these circumstances you have to work out the monthly payments on both these options and see if you want to pay a bit higher and have the peace of mind or don’t mind risking slightly higher future payments. While it might be tempting to just compare rates as of today when the base rate is 0.5% you will also have to work out what happens if base rate increases say by 1% or more. Flexibility in your monthly cash flow: If you are working on a tight monthly cash flow and there is not lot of cushion there, you might be better off taking a fixed rate mortgage because that gives you the confidence in your budgeting. Lot of people say they prefer a tracker mortgage because the slightly lower outgoings would be easier on their monthly cash flow, but the truth is if you cant afford the fixed rate today you can certainly not risk taking the tracker rate which will increase in line with the base rate. More than 1 mortgage: if you are either a landlord or have more than 1 mortgage then you might want to consider spreading your risk by having some on fixed and some on tracker this is better unless you are very confident of what would happen to the base rate. Several clients who have let out their previous property and bought a new property for them to live in would be better off keeping 1 on tracker and 1 on fixed – thereby spreading your risk. Fixed rate could be more expensive but less risky. If you think the base rates will go up or want certainty in monthly outflow or have a large mortgage balance you may be better off with the fixed rate. Tracker rate could be less expensive but more risky. If you think the base rate will not go up drastically and would like to benefit from the base rate being low and don’t have a large mortgage you may be better off with a tracker mortgage but only after you have understood the implications of changes in base rate and whether you can afford it even when base rate goes up. ArticleSource: ArticlesAlley.com
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