To fix or not to fix?

Stroud & Swindon identifies the actual savings to be made in the race to re-mortgage.

With the Bank of England widely expected to cut the base rate again this week, Stroud & Swindon identifies the actual differences in payments for those considering whether to take out a fixed rate, tracker or variable rate mortgage.

Paul Chafer, Commercial Director at Stroud & Swindon, commented: “Whether or not to go for a fixed rate deal right now can depend on a great many factors. The main reason to go for a fixed rate is for payment security. With a fixed rate you will know exactly how much you will have to set aside each month for your mortgage, which will make it easier to budget. If interest rates rise, (and who really knows!) you’ll be shielded from any nasty repayment shock as your repayments are fixed.

“However, should the Bank of England continue on its rate cutting agenda in 2008, you could end up paying over the odds for fixing, so it may make more financial sense to opt for a tracker mortgage. With a tracker mortgage, your monthly mortgage repayments will fall as the base rate does. If the base rate does drop by 25 percentage points on Thursday, a borrower with a £150,000 base rate tracker mortgage, taken out over 25 years and paying interest-only, could save £31.25 in their payments each month. Over the course of a year this is a saving of £375 – certainly not to be sniffed at.

“Unlike fixed rate mortgages, trackers don’t necessarily tie you in for a period of time. With interest rates expected to go down before they rise, it may make more sense to wait until they reach a point at which you are comfortable, and then arrange a fixed rate mortgage.

“With signs that variable rate mortgages are coming back in vogue, it is important that mortgage borrowers realise the difference between discounted or tracker mortgage rates. Trackers will follow the Bank of England base rate by a given margin, whereas discounted mortgages can be a discount off the mortgage lender's standard variable rate. However, borrowers should beware, the mortgage lender’s variable rate will not necessarily follow a reduction in the base rate, as we have seen in recent months.”

The following tables highlight the differences in monthly repayments with different types of mortgages should the base rate continue dropping this year. It assumes that the discounted variable rate will follow the base rate – which may not necessarily be the case.

Base rate at 5.5%

	£100k		£150k		£200k		£250k
	R	IO	R	IO	R	IO	R	IO
Fixed rate (4.95%)	£588.31	£412.50	£882.46	£618.75	£1176.62	£825.00	£1470.78	£1031.25
Discounted variable rate (5.35%)	£612.18	£445.83	£918.27	£668.75	£1224.36	£891.67	£1530.45	£1114.58
Base rate (5.5%)	£621.24	£458.33	£931.87	£687.50	£1,242.49	£916.67	£1,553.11	£1,145.83

R= Repayment, IO= Interest-only

Base rate at 5.25%

	£100k		£150k		£200k		£250k
	R	IO	R	IO	R	IO	R	IO
Fixed rate (4.95%)	£588.31	£412.50	£882.46	£618.75	£1176.62	£825.00	£1470.78	£1031.25
Discounted variable rate (5.05%)	£594.24	£420.83	£891.36	£631.25	£1188.47	£841.67	£1485.59	£1052.08
Base rate (5.25%)	£606.17	£437.50	£909.26	£656.25	£1,212.34	£875.00	£1,515.43	£1,093.75

Base rate at 5.00%

	£100k		£150k		£200k		£250k
	R	IO	R	IO	R	IO	R	IO
Fixed rate (4.95%)	£588.31	£412.50	£882.46	£618.75	£1176.62	£825.00	£1470.78	£1031.25
Discounted variable rate (4.80%)	£579.47	£400.00	£869.21	£600.00	£1158.95	£800.00	£1448.69	£1000.00
Base rate (5.00%)	£591.27	£416.67	£886.91	£625.00	£1,182.54	£833.33	£1,478.18	£1,041.67

	£100k		£150k		£200k		£250k
	R	IO	R	IO	R	IO	R	IO
Fixed rate (4.95%)	£588.31	£412.50	£882.46	£618.75	£1176.62	£825.00	£1470.78	£1031.25
Discounted variable rate (4.55%)	£564.89	£379.17	£847.33	£568.75	£1129.78	£758.33	£1412.22	£947.92
Base rate (4.75%)	£576.54	£395.83	£864.81	£593.75	£1,153.09	£791.67	£1,441.36	£989.58

To locate your closest branch visit www.stroudandswindon.co.uk or call 0800 618161

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