Home Buyers Guide

Chapter 6: Choosing the Right Mortgage

Step 4: What type of interest rate should I choose?

Do you need flexibility?

If you want to be able to make regular extra payments or occasional once off lump sum payments, a variable or
tracker rate is what you should consider, as fixed rates usually do not offer the flexibility of making extra payments.

So, for example, if you get a large annual bonus, or if you expect to inherit money in the near future, a discount or standard variable rate should be considered, as you would be able to pay a chunk off your mortgage balance.

Do you want the comfort of level repayments?

If your budget is tight, a fixed rate is worth considering, as your payments are guaranteed not to increase during the fixed rate period.

How long are you planning on living in your new home?

If you are planning to take a fixed rate, ask yourself if there is any possibility that you will change lenders, or pay off your mortgage within the fixed rate period.

So, if for example you think you might move in 3 years time, you shouldn’t take out a fixed rate of more than 3 years, to avoid any early repayment penalty fees.

Consider a Split Mortgage:

Some lenders will allow you to split your mortgage into 2 parts – so you’d have 50% of the mortgage on a fixed rate and the other 50% of the balance on a tracker rate. This would allow you some of the benefits of the fixed rate while also allowing you some of the flexibility of the tracker or variable rate.

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