Why a mix and match mortgage can save you a fortune

Can't decide between a fixed rate and a variable rate? Now you don't have to!

One of the biggest decisions you need to make as a mortgage borrower is whether to plump for a fixed rate or a tracker.

Take a fix and you know what your payments will be for the duration of the deal, no matter what happens to interest rates. You can budget effectively and you don’t have to worry that rates will spiral out of control.

But you won’t benefit if interest rates fall. OK, that’s not exactly likely, but fixed rates are currently priced at a premium compared to your other options.

With a tracker, discounted rate or standard variable rate you can currently take advantage of a lower pay rate, but it may increase if the Bank of England hikes its Base Rate (a tracker definitely will increase). And with Base Rate at a record low, the only way is up. Question is, when will rates rise and by how much?

Unfortunately there isn’t a cast-iron answer, which is why the decision is so difficult. At least it has been until now.

Best of both worlds

Last week sister lenders The Cooperative Bank and Britannia Building Society launched a new Mix and Match service. They will now allow borrowers to choose both a fixed and a tracker rate from their ranges, and only pay one application fee -- the higher of the two.

Borrowers can fix or track any proportion of their mortgage and all of the products are able to be combined, as long as you have the required deposit for the deals in question.

Customers can even mix and match products for different periods of time. For example, a three-year tracker product and a five-year fixed rate could be mixed. At the end of three years you would be free to remortgage the tracker portion of your borrowing to another of the lender’s products (not to another lender though!), while the fixed rate would continue for two more years.

The lenders say the new feature allows borrowers to keep the flexibility of a tracker, while benefiting from the security of a fixed rate at no extra cost.

Good deal?

This option is great if you are unsure about when rates will rise, especially considering The Co-op Bank is currently one of the most competitive mortgage lenders around, with a strong showing in the best buy tables.

Of course, that’s not to say it isn’t worth searching the whole mortgage market to find the best deal for you, because it always is -- and it takes minutes!

If you do mix and match you get the security of knowing that if rates rise any increase in your repayments will be limited because of your fixed portion. And if they stay low you are better off than if you had taken a full fixed rate, because of the cheaper tracker.

Of course, pessimists might argue that, if rates stay low, you’ll wish you’d just gone for a tracker. And if they shoot up, you’ll wish you’d fixed the lot. The ‘glass half empty’ approach.

Nothing new

It’s worth pointing out that mixing and matching is nothing new. Many lenders offer it, under differing terms, but not many advertise it.

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For example, Nationwide has been letting borrowers take a part-fixed, part-variable rate mortgage for years, as long as your split is 50/50. Like The Co-op Bank you pay the higher fee of your two chosen deals.

Santander lets you mix and match in any proportions you fancy, Halifax lets you combine a fixed and tracker and Yorkshire Building Society (YBS) also offers a mix and match service, as long as you don’t mix an offset with a non-offset deal. However YBS charges both arrangement fees if you want to do this, but it does point out that if both deals have cashback it will pay out twice!

HSBC also lets you bolt one of its tracker products onto a fixed rate, plus in May it launched its split loan mortgage, as we reported at the time in The new ‘best of both worlds’ mortgage rate, and which is still available.

Hedge your bets

Plus there are other options if you are unsure about taking a fixed or a tracker deal.

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A capped rate, for example, is a variable deal that moves up and down in line with Base Rate but has a maximum cap. This means you benefit from rate falls and are protected against rate rises beyond a certain level. Of course there aren’t going to be any Base Rate falls so it could be argued that you might as well get a fix, especially if they are cheaper than a capped rate -- which the best fixes are.

Or you could consider a drop-lock mortgage, a standard tracker where the lender agrees to waive any Early Repayment Charges (ERCs) if you want to switch to one of its fixed rates at any time. Nationwide offers this, for example, calling the facility ‘Switch and Fix’. You can benefit from a low tracker now and flee to the safety of a fix if things get hairy.

Taking a lifetime tracker without any ERCs gives you the same freedom to move to a fix, plus you can switch to a deal from any lender on the market!

But if you just fancy keeping it simple, below are my 10 favourite fixes and 10 top trackers:

10 top fixes

10 top trackers

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