Is Now The Chance To Swap To A Fixed Rate Mortgage?
Posted by Foreclosure Prevention in FinanceWith the base lending rate at an all time low, is it time to be looking fixed mortgage rates? You might be forgiven for expecting that because rates are about as low as they are ever likely to be, then now is time to get a fixed mortgage deal. But be wary of changing mortgages and take a mortgage broker’s advice before you try to compare best mortgage rates on your own!
Yes, the bank’s lending rate is the lowest ever, but at the time of writing, the banks have not said if they will reduce their costs of borrowing. If they do, that will be the variable rates that will reduce – the rate they charge to customers that are not on special deals. This will also affect capped rates and discounted mortgages.
But the banks are not stupid. They know that with interest rates at an all time low, rates are more than likely to increase in the future – especially over the period of a 25-year mortgage. They will be considering whether they think the central banks will keep the low levels for a few months, drop them further or start to raise them back up later this year.
If they think there is any chance of base rate rises in the next 12 months, then they are not going to tie their own hands by giving low rate fixed mortgages for 2, 3 or even 5 years. Instead, they will offer low looking fixed rates that go back to the variable rate at the end of 2009 . Or they will add a an increment onto the rate and let it run into 2010.
So who of the millions of mortgage payers are probably benefiting at the moment from the low base rate? Well the 30% on fixed rates most certainly are not – their fixed rates have stayed high. Variable rates, also taking in discounted and capped rates, might have fallen, but with reports that only 19 of the 90 banks passed on December’s cut fully, there’s a good certainty that those on variable rates aren’t benefiting either.
The borrowers saving at the moment should be those on tracker mortgages, but even some of these have floors built into them, meaning that if the central bank’s base rate is reduced below a given level they don’t have to keep following it, whilst other banks have increased the amount above the base rate their new tracker mortgages follow.
So are tracker mortgages the way forward and you should try to compare today’s mortgage rates for these? Well with capped floors and an widening gulf between base rate and rate charged, plus probably base rates will climb over the following few of years, it is anyone’s guess what is best. It all is dependent on your financial situation and outlook. Are you happy to take the chance of a low rate with trackers, but able to pay if they do go up? Do you need to budget closely with a fixed rate mortgage so that you can budget what you will be paying? You really need to speak to a financial advisor who can advise you.
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