Fixed vs Variable Rates

Posted on 30 September 2010 by Ash


I am first time buyer and looking at mortgage options. Should I fix or go for variable rate? I can raise a deposit of between 10 - 15% of purchase price (£108k).

Ash

 There are some key facts that you need to consider before deciding which type of mortgage suits your requirements:

 Is a Fixed Rate mortgage right for you?

 √ Yes, if you want to know exactly how much you will pay for a specified period.

√ Yes, if you think mortgage rates will rise and you wouldn't be able to afford the increased mortgage payments.

X No, if you think mortgage rates will fall (and can afford the increased mortgage payments if you are wrong).

X No, if you won’t be able to afford the mortgage payments when the fixed rate period ends.

? Possibly not if you want to make overpayments or repay the mortgage early without paying an early-repayment charge.

 Is a Discounted Interest Rate mortgage right for you?

 √ Yes, if money is tight when you first take out the mortgage, but are confident your income will increase and you can afford the increased payments when the discount period ends.

X No, if you won’t be able to afford the mortgage payments when the discount period ends.

X No, if you wouldn't be able to afford the mortgage payments following a big rise in interest rates.

 Is a Tracker Rate mortgage right for you?

 √ Yes, if you can afford to pay more when interest rates go up and want to be sure that falls in interest rates are passed on to you in full.

X No, if you would be unable to afford the increased payments.

 Whilst this might be a general guide to help you decide the specific answers will depend on your own circumstances and attitude towards risk. I recommend that you speak to an independent mortgage adviser who can complete a full factfind and guide you towards making the correct decision.

 Peter

Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.

We recommend you seek professional advice with regard to any of these topics where appropriate.

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