Fixed rate mortgages and tracker mortgages are the most popular mortgages on the market. Whilst all borrowers seek the best mortgage rate, there is still a lot of guesswork involved regarding which one is right. If economists can’t agree on the direction of interest rates, what chance does a layman have?
Are Fixed Rate Mortgages or Tracker Mortgages More Popular?
Fixing a mortgage rate at a high level can be frustrating when interest rates start to come down. Similarly, tracker mortgages can prove expensive when interest rates start to climb to combat inflationary pressure. Which mortgage type is preferred by borrowers?
Data provided by the Council of Mortgage Lenders shows that fixed rate mortgages account for 70% of all mortgages taken out in Britain. This shows that the majority of people prefer certainty. Fixed rate mortgages remained more popular than tracker mortgages even when it was clear that interest rates were coming down.
Why Choose Fixed Rate Mortgages?
The world is an uncertain place and increasing numbers of people don’t wish to gamble with their finances. Fixed rate mortgages help alleviate market uncertainty by ensuring that borrowers pay a set amount each month, regardless of Bank of England base rate changes.
Fixed rate mortgages allow easier budgeting and help those of a nervous disposition. If on a fixed income, being able to successfully plan ahead can provide peace of mind. Restrictions on overtime and second jobs being so hard to come by add further validity to taking the safe option.
Those taking out fixed rate mortgages are also more likely to take out mortgage insurance. In the event of ill health or involuntary redundancy, mortgage insurance helps with payments for a period of between 12 and 24 months.
Why Choose Tracker Mortgages?
A tracker mortgage is the best mortgage for borrowers when it is believed that interest rates are likely to be reduced. It allows borrowers to benefit from Bank of England base rate reductions, leaving more money for other monthly expenses.
Unless a discounted base rate tracker is taken out, it is normally possible to switch to an alternative mortgage deal without paying a hefty redemption penalty. This means that borrowers can easily switch to fixed rate mortgages should the interest rate tide turn for the worse.
There is no right or wrong answer when it comes to choosing the best mortgage product. Always seek mortgage advice before opting for a mortgage lender or product as quality advice can help to keep monthly mortgage payments to a minimum.