Tracker/fixed-rate dilemma unravelled

The tracker versus fixed-rate dilemma that currently faces homeowners has been investigated by moneysupermarket.com, with the odds laid out as follows:

Mortgage borrowers on tracker rates saw their monthly repayments fall substantially, as the base rate plummeted to 0.5%.

However, further falls in the base rate are unlikely whereas a rise is inevitable, probably by the end of the year.

This prospect makes the idea of a fixed rate attractive, although Moneysupermarket has calculated that the average borrower with a £300,000 fixed-rate home loan risks paying £100 a month more if they come off a variable rate in favour of a tracker now.

The situation reverses if the base rate rises by 2%, with monthly repayments on a £300,000 tracker loan rising by £152.

Furthermore, should the base rate return to its 2008 levels of 4.5%, the monthly increase could become a staggering £520.

Moneysupermarket’s head of mortgages, Louise Cuming, comments “Borrowers should not be seduced by the opportunity to make short term savings by opting for a tracker mortgage deal.”

She also urges anyone thinking about fixing to act quickly as it is generally accepted that rates have already bottomed out.

Discuss this in the Finance Markets forums

Story link: Tracker/fixed-rate dilemma unravelled