Tasty Fixed Rate Mortgages

Falling interest rates may put you off the idea of a fixed rate mortgage. However, here's three super deals which may just persuade you otherwise.

It's been a turbulent time for the economy recently. With many pundits predicting an interest rate cut next week, mortgage holders up and down the country will be waiting in anticipation of Mervyn and Co.'s announcement next Thursday.

In terms of popularity, the past few years have seen sales of fixed rate mortgages soar way above their variable rate counterparts, as Brits looked to stabilise their payments against rising interest rates.

But with rate cuts on the horizon, many homeowners are currently being tempted to swap their fixed rates for a tracker deal. These deals track the Bank of England base rate closely - which means if the base rate falls, so will your monthly mortgage payments.

However, recent research suggests that tracker mortgages are becoming more expensive. Broker John Charcol found that many lenders are increasing their margins on trackers - virtually wiping out any impact of any interest rate cuts.

In addition, around a fifth of lenders failed to pass on the last December's rate cut to their discount variable rate mortgage borrowers, with many others only passing less than the full 0.25% cut.

So, even in a market where interest rates are predicted to fall, could it still be better to take out a fixed rate?

Peace Of Mind 

A fixed rate provides you with peace of mind and security that your payments will never increase beyond a set level.

It is a good choice for borrowers on a tight budget or those who prefer not to have to worry about whether interest rates will rise or fall from one month to the next.

As trackers and discount rate mortgages become more popular, fixed-rate mortgage providers are starting to have to work harder to attract customers - which means fixed-rate deals are becoming more competitive.

A Quick Fix From HSBC

For some lucky customers at HSBC, there's good news on the way.

The bank has come up with an innovative idea that aims not only to promote customer loyalty, but shelter HSBC customers from the bumpy ride of remortgaging.

If you currently have a mortgage with HSBC, then it guarantees to match the interest rate you were paying on your old fixed rate deal when it comes to an end.

This RateMatcher offer allows you to re-fix over one, two, three or even five years, matching rates as low as 4.6%.

As ever, nothing in this world comes for free, and to take advantage of this deal you'll have to pay a fee which is dependent on the length of the fixed term and the rate offered. However, HSBC estimates that over 93% of its customers coming off a fixed rate deal in February will pay no more than £500 in fees (although some will have to pay £999 or more).

Unfortunately, the deal is only available to existing customers. Even then, it is only guaranteed until the end of April. Still, if you're a HSBC customer coming off a fixed-rate deal in the near future, it's well worth a look.

Put Your Eggs In The Egg Basket

Those who do not have the luxury of the option to stick with their current low fixed rate rate can still get a good deal by shopping around.

Egg have just launched a new three-year fixed rate mortgage with an interest rate of 5.39% for loans up to 90% of the property value.

There are no early repayment charges after the offer period has ended, and Egg will even allow overpayments of up to 10% within the fixed rate period without penalty. You could also choose to offset your savings against the mortgage.

There is a relatively small arrangement fee of £499, and at the end of the fixed term, the rate will revert to Egg's standard variable rate of 6.7% APR.

This should prove a good deal for customers who are looking for a low fixed-rate with a small fee -- although as competition increases and interest rates fall, we should hopefully begin to see other similar deals entering the market in the next few weeks.

Flying Long Haul In The Mortgage Market

If you really want to be sure of what you'll be paying over the long term, then you should consider opting for a longer term fixed rate. Fixing for longer than the standard two to five years can offer stability during turbulent times.

Woolwich has just launched a 10-year fixed rate mortgage deal, with a cheap long-term rate of 5.59%, which allows you to overpay up to 5% of the mortgage balance each year without penalty. But only well-off borrowers should apply: you'll need at least a 20% deposit/equity stake in your property to qualify for the deal. 

What's more, this deal carries a hefty 6% early repayment charge during the fixed rate period. This means, should interest rates fall dramatically or you want to remortgage and increase your borrowing (perhaps because you want to move to a more expensive property) at any time in the next 10 years, you will be expected to pay 6% of your outstanding loan as a penalty. 

So this deal is really only suitable for borrowers who are sure they want to fix for such a long time. It also demonstrates just how important it is to visit a professional mortgage broker, who will also ensure you understand all the fees involved and there are no nasty surprises hidden in the small print. (The Motley Fool offers a fee-free, whole-of-market Mortgage Service if you are looking for this sort of advice).

Stormy Mortgage Seas 

Once you've done your research, you may well find that -- instead of going for a fix -- hedging your bets on a tracker or a discount mortgage could save you a packet on your mortgage payments.

Of course, this is all very well if you're equipped to ride the stormy mortgage seas. But if your budget is already stretched, choosing a fixed rate ensures that you'll always know what you'll be paying -- and keep your bank account safe from any looming interest rate shocks.

More: Beware The Discount Mortgage Trap! / How To Cut The Cost Of Your Mortgage

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