Mortgages - how do you decide which type to go for?

[TeWiDoesTheHulaInHawaii]

I really have no idea how we are supposed to chose between fixed, variable and tracker rates.

It depends largely on your attitude to risk and on what you can afford.

Variable.... these are usually a little cheaper but, if the rates go up, you have to pay more straight away. Rates can increase independent of the base rate. So it's risky. If there's plenty of spare in your budget and having to find another £100 or £200/month wouldn't be a problem then you might be OK with this. If your budget is very tight with no spare and finding another £100/month would be a train-smash this may not be right for you.

Tracker.... A little like the variable rate. Can go up or down but not quite as risky because it's fixed to being a specific X% above the base rate. The rate won't go up if the base rate stays the same. Same comment about budget applies.

Fixed.... These are usually more expensive but offer peace of mind i.e. whatever happens, you are going to pay the same each month for a set period of time. Low risk therefore. What to watch on this type are any restrictions around penalties for early repayment. If you're planning to overpay your mortgage or you get bonuses and want to pay off lump sums, bear that in mind.

Thank you, that's very helpful!

I think we'll look at the Tracker ones first, if we can get a good starting rate we do have a reasonable amount of leeway and would potentially like to pay off chunks early.

Have you asked an independent mortgage broker or financial adviser to scout some mortgages for you? If you give them the brief that you're happy with variable payments and want to pay off lump sums from time to time they can filter through the products on the market and find the ones that best meet your criteria. I find them very useful and have saved me a lot of money over the last 10 years or so.

I do have a IFA that sorted out our life Insurance, so he is on our list of people to speak to. Just checking with all the banks/building societies we have accounts with first in case they'll give us a discount (you never know!) and generally hoping to sound like I know what I'm talking about .

IME there are few rewards for loyalty in the financial services sector and they rarely offer existing customers the best deal. :) Mortgages are just products with a price attached. In that respect it's no different to buying a new car. I've always found shopping around pays off. Good luck anyway.