The ultimate mortgage if you're indecisive

Perplexed by the fixed/tracker rate debate? With this mortgage, you don't actually have to choose between them!

It’s the question all borrowers looking to take out a new mortgage have to ask themselves: do I go for a fixed or a tracker rate mortgage?

There is a clear case to be made for both options. With a tracker mortgage you can take advantage of the record low base rate, paying a tiny rate of interest on your loan. But a fixed rate offers you more certainty, so while you’ll pay a slightly higher rate of interest, you won’t have to worry about any changes in bank base rate for a while.

However, there is a mortgage that offers you the best of both worlds

The mortgage middle ground

Two mortgage lenders – Accord and Chelsea Building Society – currently offer tracker-to-fixed mortgages. This means that for the first couple of years the interest rate will work on a variable basis, tracking at a percentage above the bank base rate.

Then, in years three, four and five you get to enjoy the security of a fixed rate.

So you get to take advantage of a tracker deal during the time period when rates are most likely to stay low (according to the economic experts, anyway), and then move over to a nice low fixed rate at a time when, in all likelihood, the fixed rates on offer to new borrowers will be a fair bit higher.

With this type of mortgage, you don’t need to make a decision between a tracker and a fixed rate deal – it’s the perfect mortgage if you’re a bit indecisive!

According to our mortgage team here at lovemoney.com, this is a type of mortgage that’s proving extremely popular with many of the people making use of our mortgage centre to find a new deal.

Let’s take a look at the deals on offer from each lender

Accord Mortgages tracker-to-fixed-rate range

Tracker rate (for the first two years)	Subsequent fixed rate (for the following three years)	Maximum loan-to-value	Fee
2.29% (base rate + 1.79%)	3.49%	75%	£1,995
2.49% (base rate + 1.99%)	3.69%	75%	£995
3.39% (base rate + 2.89%)	4.49%	85%	£1,995
3.59% (base rate + 3.09%)	4.69%	85%	£995

Deals also available as offset mortgages

Chelsea BS tracker-to-fixed-rate range

Tracker rate (for the first two years)	Subsequent fixed rate (for the following three years)	Maximum loan-to-value	Fee
2.19% (base rate + 1.69%)*	3.99%	70%	£1,495
3.09% (base rate + 2.69%)*	4.89%	80%	£1,495
4.09% (base rate + 3.69%)*	5.89%	90%	£1,495
2.09% (base rate + 1.69%)	3.89%	70%	£1,495
2.99% (base rate + 2.49%)	4.79%	80%	£1,495
3.99% (base rate + 3.49%)	5.79%	90%	£1,495

*Offset deals

As you can see, generally, the rates on offer from Chelsea are a little better, with lower interest rates and product fees. However, a lovemoney.com mortgage broker recently mentioned to me that borrowers need to meet tougher lending criteria in order to be accepted for a Chelsea mortgage, so that’s worth bearing in mind.

The downsides

Inevitably, it’s not perfect. For starters, only two lenders offer these deals, so you aren’t exactly blessed with a huge number of deals to choose from. Indeed, if you only have a 10% deposit, your choice amounts to deciding between the normal mortgage and offset version on offer from the Chelsea Building Society.

You’ll also pay a premium for knowing that you have the fixed rate safety net in the background, in the form of a higher rate on the initial tracker period.

For example, if you have a 25% deposit, you can currently get a two-year tracker from Accord at 2.09% (base rate plus 1.59%), a rate 0.2% cheaper than if you went with the tracker-to-fixed-rate deal. On a 25-year, £125,000 mortgage, that’s the difference between monthly repayments of £647 and £662.

And then there’s the fees being charged. Fees of £1,495 and £1,995 are well above the average mortgage fee, so you’ll really be paying for the privilege of being indecisive!

Making your mind up

I’ve long been an advocate of longer-term fixed rate deals in the current climate, particularly as the rates are so low compared to historic levels. However, I also think these deals are an excellent alternative for those who don’t want to miss out on the tracker rate bandwagon, and have room for manoeuvre should their gamble not pay off.

One thing to bear in mind is that this mortgage is still a commitment for five years, so if there’s a chance that you may need to move home within the five-year term, make sure your deal is portable. Otherwise you may end up wasting any cash you’ve saved in the form of Early Repayment Charges.

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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call freephone 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.