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Why get in a fix, when you can cap for less?

19th July 2011 Print

A capped tracker mortgage will secure homeowners against Base Rate rises and save them money over the next 3 years.

first direct's 3 year Capped Tracker mortgage has been launched as the perfect solution for borrowers unsure of how long the current record low 0.5% base rate can last, and whether they should track or fix. The 75% LTV deal currently charges 3.08% (2.58% plus Bank of England base rate), and is a full 1.24% cheaper than the average 3 three year fixed 75% LTV mortgage.

first direct's calculations (see below) show that if the Bank of England Base Rate (BR) remains below an average of 1.75% over the next three years, its Capped Tracker mortgage holders will always be better off than their contemporaries taking the market's current average fixed rate of 4.32%.

So for a £150,000 mortgage holder, at today's base rate, they would be over £100 per month better off with FD's capped tracker, than the same borrower taking today's average 3 year fix.

Where's the catch.... what's the downside?

However, should rates spike, the capped borrower has a maximum downside of being just £22.08 per month worse off, as the cap will stop monthly payments rising further.

Richard Tolchard, Senior Mortgage Product Manager at first direct commented: "It's understandable that many borrowers are nervous about missing out by fixing too soon or being stuck on a tracker when the rates go up. However, with economists almost unanimous that rates won't increase this year, a Capped Tracker lets them benefit from low variable rates now with the cap there to protect them should rates rise quicker and higher than anyone thought."