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Tracker/fixed-rate dilemma unravelled

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by Gill Montia

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.

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News posted: June 29, 2009

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