Remortgaging? To fix or not to fix - that is the question

If you have a fixed-rate mortgage deal ending soon, you may well be worried about what you are going to do when your present arrangement comes to an end. With mortgage interest rates fluctuating wildly in current market conditions you are right to be concerned about your next round of finance, but don't panic - all is not doom and gloom.

A few weeks ago things were looking very bad indeed, and debt advice firm Newtomorrow.com reckons the average homeowner with a £150,000 mortgage taken out two years ago will need to find an extra £100 a month - or £2,000 extra salary per year before tax - to be able to afford a new fixed-rate or discounted deal when their current deal expires.

Are you looking to remortgage to get a more competitive interest rate?

According to the firm, back in October 2005, the average fixed-rate mortgage was priced at 4.96%, meaning a £150,000 mortgage would have cost around £885 per month.

Now similar fixed-rate deals, such as Skipton's two-year offer, are priced at around 5.79%, meaning repayments on the same mortgage would cost £996 each month.

There was good news for borrowers with variable-rate loans when the Bank of England held its base rate at 5.75% last week.But there are signs that the cost of fixed-rate loans may also be falling. Fixed-rate mortgages are dependent on swap rates - the rates at which the banks lend to each other. Back in July two-year swap rates peaked at 6.33%, but now stand at 5.7%.

Borrowers stung by the shock of coming off a short-term fix only to find the price has rocketed are increasingly choosing longer-term remortgage deals.

Are you getting the best deal on your mortgage? Find out how much you could save right now!

Steve Aldous, general manager at Skipton, says, "The market has seen an increasing rise in rates throughout the year, but due to a welcome respite we can now offer homeowners sweet relief with our new range of lower, competitive fixes.

"Despite the Bank of England base rate remaining at 5.75%, the cost of long-term fixed lending has now decreased. This means that borrowers coming to the end of a fix need not worry, because they can choose from a variety of the best rates that we have had available for some time."

Among those to cut five-year rates is Abbey, which has trimmed back its five-year fixed-rate loans by as much as 0.36%, due to a fall in long-term swap rates. 10-year fixed-rate mortgages have gone down by as much as 0.25%., depending on the borrowers status

Sue Hayes, director of mortgages at Abbey, says, "Now is a good time to take out a long-term fix. With the current uncertainty in the money markets, we found that nearly 40% of homeowners would choose a five-year fix or longer if they were to remortgage tomorrow. What's more, with providers like Abbey bringing their rates down, these long-term products are looking particularly competitive."

Sure about your mortgage choices? If you're not and you need someone to talk to, why not call us for independent, unbiased mortgage advice.

07 October 2007 © Moneyextra.com

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