Buying my first property was something I’ll never forget. The joy and sheer excitement of buying my first home with my hard earned cash is a memorable milestone. A year after I fixed my twenty – five year mortgage, the Bank of England Interest rates dropped from 5% to 0.5% within 12 months. I could have saved over £600 a month in interest, but I clearly did not.
Nobody in this entire world has a crystal ball on what may or may not happen tomorrow. I always remember the words that came out of the mortgage advisor’s mouth, “Bank of interest rates may fall or rise which impacts your monthly payments….”. The mortgage advisor was someone I worked with so I had heard the phrase many times before.
My logical brain turns on risk adversity on the latter facts and I decided on a Fixed Term mortgage without hesitation. My monthly salary would sustain it if the interest rates went up a mere 0.25% but fear kept me on a fixed rate product.
There is no right or wrong answer for choosing between a Fixed or Tracker rate mortgage. According to a recent survey, 85% of the first-time buyer would always prefer a fixed term mortgage over tracker due to peace of mind and always the most popular options for most younger home buyers. Banks are not going to mind as Fixed Term rates have always seemed to be more profitable (higher rates) and higher security with less likelihood for mortgage default payments with changing circumstances.
What is a Fixed Term Mortgage?
The lender agrees to give you a medium to long term agreed rate. During the period the lender cannot change the rates despite the changes on the national Bank of England rates. This would protect you from any financial changes if the rates increase. However, you cannot receive any benefits if the rates decrease either. Overpayment is very limited subject to the lender conditions and early repayment charges for the exit before the term ends.
What is a Tracker Term
The lender has agreed to
provide a rate ‘X’ percentage above the Bank of England rates for a fixed-term
period. If the rates increase, you are subjected to pay a higher rate Bank of
England rate above the ‘X’ percentage. If the Bank of England rates drops, then
you would be subjected to monthly savings.
If you would like a free chat
about your circumstances and a professional recommendation on a mortgage or
bridging product to suit your needs, call Paul on 01902 213201