To fix or not to fix

Most mortgage borrowers have faced this question at some point as they feel drawn to the security of a fixed rate mortgage while eyeing the possible savings to be had on a variable deal should rates fall.   While fixed rates have remained the overwhelming choice this year, the decision has become harder over the course of the summer, as while fixed rates have fallen, cuts in bank base rate are widely tipped to come early next year.   However, there are solutions for those borrowers who are still undecided.   Over recent months we have seen the re-emergence of bank base rate trackers, which carry no early repayment charges. These allow the borrower to take advantage of any cuts in base rate, but retain the ability to switch to a fixed rate without penalty, once they are comfortable with the rates on offer.   These variable rates are often lifetime trackers, which guarantee to follow the bank base rate at a given margin for the life of the mortgage, so should the borrower stick with the deal, they should still offer good long term value.   The alternative route is to take a tracker mortgage with a lender who offers to waive the penalty should you wish to switch to one of their fixed rates at a point in the future. This option is more restrictive as you have to choose from the same lenders mortgage range, but in return should reduce the costs and the time taken to complete the switch.   Often known as a drop lock option, borrowers need to research the details thoroughly as they may carry restrictions such as Halifax’s variation called Rate Guard, where you must make the switch in the first 12 months, and the lender may not include its entire range of fixed rates. Other lenders offering a similar option are Cheltenham and Gloucester with their All-weather product and Nationwide who offer a switch to fix option on all tracker deals.   Drop lock options can provide a solution for some, but borrowers should allow for any arrangement fee that applies to the fixed rate.

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