Fixed Versus Variable – the Mortgage Battle

When getting a mortgage, especially if you’re a first time buyer it can seem a bit daunting, with all the jargon flying about fixed rate, variable rate, tracker etc. It can feel confusing when trying to get a mortgage sorted coupled with the pressure and time constraints to get all the paperwork sorted for your new house it can be a pretty daunting task.

This article will hopefully give you a general idea of what each one is and whether it suits your situation as fortunately there are many different types and they cater towards all eventualities. The main point to make clear is that one mortgage deal may be suitable for one person but not for another, so it’s best to look into possibly getting financial advice.

Firstly a lot of mortgage lenders tend to offer attractive deals to get you onboard, these normally last for around two to five years, during which you get a fixed or variable rate, after this period ends you begin paying back at the lender’s standard variable rate. This is normally 2{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} above the bank rate, it is at this point where some lenders allow borrowers to pay a small cost to change providers and take advantage of more deals again. “Playing” with the system this way ensures you can always have the best deal, assuming inertia doesn’t keep you with your original lender!

Standard Variable Rate mortgages
This mortgage tends to be reflective of the Bank of England’s rates, although this is not a certain measure as lenders are not obliged to reduce their rates if the bank does. People who don’t follow the value of their mortgages may end up with this kind, and the repayments are not that competitive unfortunately.

Discounted Rate mortgages
These rates tend to follow the previously mentioned Standard Variable Rates, the rates tend to be more attractive than the fixed rate ones but is risky as it follows the bank rates which can rise unexpectedly.

Tracker mortgages
Tracker mortgages are very similar to SVR mortgages however it is relative to the bank’s rates at all times, so when it drops by 2.75{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} it will go down by that much, not 2.0{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} if you were on a SVR mortgage. This is a bit of a double-edged sword as if the bank’s rates rise so will yours.

Fixed Rate mortgages
These are the most secure in that you will never rise or fall, the trouble is to counteract this the rates are normally set high to start with, in the UK it is popular to get a fixed rate mortgage for two years or longer, the main consideration is to make sure that your loan is portable should you choose to move house.