If you are a homeowner looking to limit the effects of rising mortgage rates you should make sure you consider discount-rates as well as fixed-rates. Whilst fixed-rate mortgages give people certainty of payment, they may not have the cheapest cost over the life of the mortgage. Particular care should be taken when there is a prospect that interest rates may start to come down- in these circumstances taking out a three or five year fixed rate mortgage may be throwing money away.
Recent research by mform.co.uk found that as at 26 July 2007 the average true cost of the 10 best two-year discount deals is 1,697.04 lower than the average true cost of the 10 best two-year fixed deals around 70 a month. A borrower would pay an average 16,526.16 over two years in a top 10 discount deal compared with 18,223.20 in a fixed deal.
The true cost of the top 10 discount deals over two years ranges for a 150,000 loan ranges from 12,796.50 to 17,694 compared to a range of 15,095 to 18,939 for two-year fixed deals.
Most recent Council of Mortgage Lenders figures show that in May this year 78 per cent of mortgages taken out were fixed rates as borrowers reacted to rate rises...
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