Traditionally speaking, it has long been held that home owners will fare better over the life of their mortgage if they elect to stick with a variable rate package rather than go for a fixed option. While fixing might protect you from rate hikes in the short term, many experts suggest that you’re more likely to win out and pay less interest by the end of your loan if you go with a variable product and ride the ups and downs of rate movements.
Recent data indicates that many borrowers are shunning this principle however, opting for a fixed rate loan and the certainty that it brings in these rather uncertain economic times.
Mortgage Choice have revealed that more than 15% of new customers chose to fix part or all of their loan in December, compared with an average of less than 5% throughout 2010. The popularity of fixed loans has surged in recent times and borrowers are now fixing at the highest rate for three years.
It’s not only last year’s interest rate rises and the promise of more to come over the next 15 months that has spooked people into going with a fixed option; there’s also the rising cost of utility bills, groceries and petrol that has many concerned.
But given that most borrowers only act when rates have already started to climb, is it too little too late, or is the certainty of a fixed rate product still worth considering after the proverbial horse has bolted?
The key to answering this question essentially lies with the individual borrower. It’s about what you feel comfortable with – do you prefer the certainty of knowing how much your mortgage commitment will be each month? – and the deal you can get from your lender. You also need to consider whether the cost of refinancing an existing mortgage will be worth the money you save over the term of your fixed rate loan.
At time of writing, it is still possible to secure a 3 year fixed loan for around 7.2% with some lenders, which is quite a good deal as it’s comparable to the going discounted variable rate currently on offer.
Essentially you need to do your sums and most importantly, seek some good advice from a reliable mortgage broker who can assess your situation and guide you in the right direction. Sometimes you’re best to stick with the old adage – if it ain’t broken, why try to fix it?