Mortgages: Should I choose a variable or a fixed rate?

This is one of the first questions my clients ask when discussing their new mortgage or remortgage: Should they take a variable or fixed rate mortgage?

Firstly, here is an explanation of the main types of interest rate.

Fixed Rates: When you fix your mortgage rate, your monthly repayments stay the same for a set period of time. Changes in the Bank of England base rate have no impact on your monthly repayments. Fixed rates are typically available over terms of between 1 and five years.

Variable rates: There are two sorts of variable rate mortgages. A ‘discount’ rate will be at a set percentage below the lender’s standard variable rate for a set period of time. Lenders are able to set their own variable rate which can vary considerably. A lenders standard variable rate is not directly linked to the Bank of England rate and therefore may not follow movements in the base rate. Tracker rate mortgages address this issue as they are directly linked to the base rate and therefore not set by the lender itself. This means that the lender cannot manipulate the rate to its own advantage.

So which is best?
Rates vary all the time so the first issue is to see what deals are on offer from all the lenders. As an IFA I can access this information and show and explain all the
current options.

At present, due to the low base, rate tracker mortgage rates are generally lower than fixed rates. However, with the base rate a record low, tracker mortgage rate payments will almost certainly rise in the future. It is therefore important to check you can afford your mortgage even if rates rise.

Fixed rate loans offer the security of your monthly payments remaining the same. For many clients this is a very attractive feature. Currently fixed rates are at a 10 month low and with the base rate set to rise now may be a good time to take advantage and opt for a fixed rate.

Whatever your situation it is important to speak to an Independent Financial Adviser who will be able to explain all the options and help you choose the right mortgage for you.

If you would like any advice regarding your mortgage or any other area of your finances please contact Richard Martin of Richard Martin Financial Solutions Ltd on 01903 814848 or email richard@richardmartinfs.co.uk

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