Ask Our Expert

Tracker mortgage or fixed rate mortgage – Ask Our Expert

Our money expert says…

Whenever people come to remortgage or buy a home there is always the dilemma of track or fix.

Both types of mortgages have their merits and drawbacks, and what is right for one borrower may not be for another.

Variable rate mortgages, of course, have the potential for repayments to go up or down.

So for many looking for stability and the knowledge that repayments will hold firm, a fixed-rate deal may be the best option. Fixed-rate deals are often popular with first-time buyers as given the costs of moving in, they are want to avoid any financial shocks.

See our guide to variable rate and fixed rate mortgages

Compare 100s of mortgage deals Compare mortgage rates from 1.98% Get a free no obligation mortgage quote

Track or fix?

But the bottom line for many is which mortgage type will be cheapest.

Much of this debate rests on what you think may happen to interest rates. Economists in the City are paid handsome salaries for their predictions and still get it wrong, so it’s not easy to answer.

At the moment at least, it seems that Bank of England can only increase interest rates – as they have been at a the record low of 0.5% for almost a year now. Inflation may have risen in the last two months, but the Bank expects it to drop back in the second half of the year, so major interest rate rises seem unlikely in the near future.

However, they cannot be ruled out further down the line, and the rapid change of events during the financial crisis show changes can come fast and unexpectedly.

At the moment tracker mortgages seem cheaper, but they are linked to the base rate that is so low. If a tracker is on the market at 3% now (2.5% over base rate), a base rate rise to 3% (historically still very low) would see the mortgage rate jump to 5.5% and repayments would follow suit. Such a jump in interest rates seems unlikely this year, but it is worth thinking about.

Fixed-rate mortgage deals, however, currently seem a bit pricier upfront – especially as the length of the fixed rate term lengthens.

A nice compromise to consider is a variable rate or tracker mortgage that gives you the option to remortgage further down the line without any early redemption charges in case interest rates starts to rise.

Contacting a whole-of-market mortgage broker is the best course of action. They should be able to talk you through your options and offer advice tailored to your individual needs and circumstances.