Published at 15:12, Friday, 17 September 2010

Summer looks to be behind us, and it’s traditionally a popular time of year to be moving home, which, for most of us, means a new mortgage.

With the Bank of England interest rate still at 0.5 per cent, and likely to remain low for the foreseeable future, if you are in the market for a mortgage at the moment you are faced with quite a choice.

So, in this climate, how do you go about selecting the right mortgage product? Should you opt for a fixed rate deal or a variable rate product that tracks the Bank of England Base Rate?

What may work out best in the long run?

Well, the first things to consider are the pros and cons of the some of the different deals that are presently available.

Fixed Rates

A fixed rate mortgage will guarantee that your interest rate will remain unchanged for a set period of time.

You would normally have to pay an up-front product fee and be “tied in” to the deal for at least the length of the fixed rate period. Advantages of taking a fixed rate mortgage include:

Peace of mind – knowing for certain what rate you will pay for a set period of time.

Ease of budgeting, as your mortgage payment will remain the same whatever happens to interest rates.

Potential to save money against a comparable variable rate deal if interest rates rise over the term of the product.

There are also some disadvantages in taking out a fixed rate mortgage, including:

Product fees can be particularly high for the very best deals.

You will be “tied in” to the deal until at least the end of the fixed rate period.

If interest rates remain low for the period you are “tied in”, a comparable tracker mortgage may prove to be cheaper over that period.

Trackers

These are variable rate mortgages that track a recognised index, which in most cases will be the Bank of England base rate. The interest rate that you pay tends to be a set percentage above the Bank of England rate for a set period of time. Your payments will go up or down whenever the rate it is tracking goes up or down.

Many tracker mortgages have product fees and “tie in” periods.

Advantages of tracker mortgages include:

The starting rate for the product tends to be lower than the equivalent fixed rate.

You could benefit from any future cuts in interest rates.

Product fees can be lower than with fixed rates.

As with fixed rates there are some downsides as well, including:

As the interest rate is variable, your payments can increase.

A number of products have built in floors/collars which prevent any future reduction in your payment even if the Bank of England rate decreases.

Taking all these points into account should make it easier to decide what the best product is for you. One size does not fit all and individual circumstances will also need to be taken into account.

Getting the right mortgage product is an important decision and getting some advice from an expert is a key part of the process.

For more details on the Cumberland’s range of mortgage products, call into any local branch, visit www.cumberland.co.uk or call 0845 601 8396. Your home may be repossessed if you do not keep up repayments on your mortgage.

Published by http://www.cumberlandnews.co.uk