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A heady fix

Is it best to look for a fixed rate mortgage or with predictions of the base rate being pessimistic, it a variable rate mortgage the best option?

To fix or not to fix? It is a question that many potential homeowners have no doubt pondered recently. The ship which sees many borrowers paying next to no interest on their repayments has long sailed, but with predictions of the base rate not reaching former levels for many years to come, there is a temptation to take a punt on a variable deal.

However, new research reports that over half of Britons benefiting from a repayment holiday because of their favourable tracker mortgage are truly taking advantage of the historically low rates they are paying.

Just one in five borrowers with trackers said they had kept their repayments at the same level they were before the cuts, cutting the term of their mortgage. The same number admitted to using the money to treat themselves, while a more sensible one in four said they were using the additional funds to pay off other debts.

While it may seem tempting to treat the repayments holiday as just that, the sensible option is to keep paying as much as before, thereby cutting valuable time from any payment plan. In financially uncertain times, it is almost certainly preferable to pay off more than needed rather than the bare minimum, especially when that minimum is almost nothing at all.

Paying off other debts while the chance and - more importantly - the funds are there to do so is certainly an advisable choice. This is especially true if you have a number of credit card bills or loans that have a large amount outstanding. If the low base rate has provided an unexpected opportunity to get your finances in order, it is certainly a chance that should be grabbed with both hands.

Frittering it away on luxuries may seem like a good idea at the time, but that is almost certainly not going to be the case should the interest rate start creeping back up. Homebuyers looking for a little bit of security should look at what deals are available in the fixed rate arena. True, the rock bottom repayments will not be found here, but a clear understanding of how much needs to be repaid each month for a concerted period of time will be valuable to some.

If this is true for you, a 5 year fixed rate mortgage might be the way to go. While the average rate is 6.24% for five year deals, there are lenders that offer as low as 4.95%, although a sizable downpayment will be needed. They will not be for everyoneFeature Articles, but buyers looking to lock in for a number of years with a healthy deposit may like what they find.

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