Tracking or fixing? It all depends on mortgage rate rises

With the markets slumping and house-prices stagnant, it would seem unlikely that the mortgage rate is going to surge any time soon. It's understandable though that many home owners with substantial borrowings have the occasional sleepless night about those all important percentages.

With the Bank of England committee meeting every month to decide on interest rates, all of us check anxiously to see if our monthly payments are going up. The current economic gloom in the UK makes it unlikely that increases will take effect until the spring of 2012 at the earliest, and some analysts are suggesting late summer. When rises come they will be small and steady rather than sudden lurches upwards.

Borrowers looking for peace of mind are caught between wanting to sign up for a fixed rate, and worrying that this might end up costing them more if interest rates stay low for a year or more.

There are compromise solutions. The Yorkshire Building Society (www.ybs.co.uk) has launched a combination track and fix mortgage that lets borrowers start with a tracker rate of 2.29% (base rate plus 1.79%) for 2 years, then switch to a fixed rate of 3.79% for 3 years. The bad news is that you'll need a 40% deposit, and will have to pay a £995 fee.

With interest rates shying away from a quick rise, lenders are trying to make their fixed rate deals more tempting by cutting the rates. Keep up to date with the latest developments at www.mortgagenewsdaily.com

Attention-grabbing rates of 3.39% and 3.49% (from the Chelsea and Yorkshire respectively) will attract borrowers looking for a fixed mortgage rate to rely on for the next 5 years. Remember to factor in the additional fees though, as these can defeat the purpose if you are borrowing a relatively small sum.

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