If you are a homeowner who wants to limit the effects of rising mortgage rates, you should think about both fixed and discount rates. Fixed-rate mortgages give people a clear idea of how much they will pay each month, but they may not be the best deal over the life of the loan. When there is a chance that interest rates may start to go down, you should be extra careful. In this case, getting a three- or five-year fixed-rate mortgage may be a waste of money.
Recent research by mform.co.uk found that as of July 26, 2007, the average true cost of the 10 best two-year discount deals is GBP1,697.04 less than the average true cost of the 10 best two-year fixed deals, which is about GBP70 a month. In a top 10 discount deal, a borrower would pay an average of GBP16,526.16 over two years. In a fixed deal, the borrower would pay an average of GBP18,223.20.
For a GBP150,000 loan, the true cost of the top 10 discount deals over two years ranges from GBP12,796.50 to GBP17,694, while the range for two-year fixed deals is GBP15,095 to GBP18,939.
The latest numbers from the Council of Mortgage Lenders show that in May of this year, 78 percent of mortgages that were taken out had fixed rates. This is because borrowers were worried about rate hikes and the possibility of more to come. The research from mform.co.uk could mean that borrowers should look closely at discount rates.
Discount rates are good right now, and they also give borrowers a chance to benefit if rates start to go down next year, as some experts think they will.
The way you feel about interest rates should be a big part of how you decide which type of mortgage to get. Once you have decided, you should use a mortgage comparison site that looks at the whole market and lets you compare mortgages based on how much they will really cost over the course of the mortgage deal.
