This is a new incentive that is designed to stimulate the remortgage market. What it basically does is to allow the borrower to track the lenders standard variable rate for a pre-specified term and if the interest rate (Bank of England) increases the borrower can fix their mortgage for the reminder of the term specified at the start of the regulated mortgage contract (i.e. if you started on a 5 year tracker and decided that they would like to fix the reminder of the term at month eighteen, in real terms this would mean they could fix their mortgage for the remainder of the term in this example three and a half years.
This product will have some set up costs involved and these fees will vary from lender to lender on this basis you would be advised to use the services of KPM Financial Services who will compare the whole of the market and select a product with none or very low fees. The main benefit of this product is that unlike a normal tracker where you are tied in for the term of the tracker, you are not tied in and free to switch to a fixed rate mortgage at any time but once you fix the rate you will be tied in for the reminder of the tracker term. (basically going back to the 5 year example if you fixed at year two you would be tied into the fixed rate for a further three years.
There are two problems when it actually comes to fixing the rate at which you mortgage is charged an interest rate, they are as follows:
1) Firstly once the Bank of England meet and decide to increase the rate the lenders will withdraw all of their current fixed rate mortgages and load them, their loading will be the increase plus a slight margin, it could be 0.10%. on this basis KPM Financial Services will be in a position to fix your mortgage on that day with your permission.
2) Secondly the lenders (as they do) are not forthcoming with any fees associated with setting up the fixed rate mortgage, this will vary from lender to lender, again on this basis using the services of our firm will ensure you get the best possible rate at the best possible price. Do not try and deal with your current mortgage provider as they only sell their products and the advice they give you is extremely restricted.
The current Bank of England base rate is 0.50% and it has been this for the last twenty six months, a rise is on the way, when nobody knows. One school of thought is that when domestic fuel prices fall, especially at the pumps could result in an increase of between 0.25% and 0.50%. The school of thought is that the UK Base rate will be at 2.50% by the end of 2012, if this theory is correct this mortgage product (track and fix) will be a life saver for hard pressed brittons. On the other hand the base rate could stay the same for the next two to three years and this product would have been a waste of time especially if you have decided to fix your mortgage on the first rate increase. This decision is left to the individual person and their current financial circumstances. Beware this product can be very good if brokered correctly or very bad if not please use KPM Financial Services for good sound financial advice. Visit us at www.kpmfinancialservices.co.uk
Guest post by:
Kevin McGee (Principal)
KPM Financial Services
*this story first appeared in our weekly homeowner newsletter dated 14th June 2011. Click here to read the full home improvement quotes newsletter.
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