Choosing the right remortgage product can feel overwhelming, but understanding the differences between fixed, tracker, and variable-rate mortgages can make your decision much easier. Here’s a guide, complete with examples, to help you decide which type of deal might suit you best.
Fixed-Rate Mortgages
A fixed-rate mortgage ensures your interest rate remains the same for a specific period, typically between 2 and 10 years. This makes your monthly repayments predictable, offering peace of mind and protection against rising interest rates.
Example:
Sarah remortgaged her home with a 5-year fixed-rate mortgage at 3.5%. For the next five years, her monthly payment of £800 remains constant, even if the Bank of England base rate rises. This stability allows Sarah to budget effectively without worrying about sudden increases in her repayments.
Tracker Mortgages
Tracker mortgages follow the Bank of England base rate, plus a set percentage determined by your lender. If the base rate goes up or down, your monthly payments adjust accordingly.
Example:
Tom chose a tracker mortgage with a rate of 1.5% above the base rate. When the base rate was 0.5%, his total interest rate was 2%, and he paid £750 per month. However, when the base rate rose to 1%, his interest rate increased to 2.5%, raising his monthly payment to £800. While Tom enjoyed lower payments initially, he had to be prepared for potential increases.
Variable-Rate Mortgages
Variable-rate mortgages have interest rates set by the lender, which can change at their discretion. These often start with lower rates compared to fixed mortgages but can rise unpredictably.
Example:
Emma chose a variable-rate mortgage with an initial interest rate of 3%. Her monthly payments started at £700. However, after six months, her lender increased the rate to 3.5%, raising her payment to £750. Although the initial savings were appealing, Emma had to manage the unpredictability of her payments.
Which Option is Right for You?
- Fixed: Best for those who value stability and predictable payments, like Sarah.
- Tracker: Suitable for those willing to take a calculated risk for potentially lower rates, like Tom.
- Variable: A good choice for those comfortable with fluctuations and looking for lower starting rates, like Emma.
Take time to evaluate your financial goals and risk tolerance before choosing a remortgage deal. If you’re unsure, Westfield Financial Services can help you find the best option tailored to your needs.
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