If it's fixed..don't mend it

ACROSS the country, the phenomenon of MORTGAGE ENVY is on the rise.

Sensible borrowers who cautiously chose fixed rates are peering over their neighbours' fence to wince at super-cheap tracker home loans.

My mailbag is stuffed with letters from people asking the same burning question:

"Should I ditch my fix?"

With UK base rates at 300-year lows, you may be surprised that I'm about to explain the answer for many is NO.

Exit penalties, fees and a lack of new cheap deals means many people are unlikely to save, and it may leave some substantially out of pocket.

Yet there's nothing wrong with asking.

Those locked in at 5-6% can pay more than £600 a month per typical £100,000 repayment deal, while those few lucky blighters on hot trackers which followed base rates down can pay as little as 0.5%-just £350 a month.

At the extreme, some on ultra-low interest-only trackers pay just a few quid a month.

DON'T LOOK BACK WITH HINDSIGHT

BEFORE checking the numbers, think about WHY you fixed. The advantage is surety. Unless you've got a crystal ball it's the only way to know exactly what you'll need to pay, so you can plan accordingly.

Once you've bagged your fixed deal it's worth shutting your eyes to interest rate movements. If you wanted payment security you've got it. Thinking, "If only I'd . . ." doesn't help.

What's happened in the last six months is mind-blowingly unprecedented.

Imagine it had been the other way and rates had JUMPED 5%. You'd still be safe, paying exactly the same as you are now.

Think about it like this . . .

Heads or tails? You win and I'll give you £10; if I win, you only need to give me a quid. Of course, from my side it's a stupid bet, so let me reiterate, this offer's only to illustrate my analogy. Would you take the deal?

Provided you can afford a pound, at 50-50 odds the downside's small and the upside's huge, so take it.

Now let's toss the coin . . . you lose.

Yet the fact you lost doesn't mean it was a bad bet.

The same's true with a fix. Just because the other option turned out cheaper doesn't make your choice wrong. There was no way of knowing.

SHOULD I STAY OR SHOULD I GO NOW?

TO work out whether you could save by ditching your fixed rate, first, understand that while existing tracker rates can be at 1% or less, few widely available new customer deals are as low as 3%. Here are the crucial pointers:

How big is your loan-to-value (LTV)? Only those seeking to borrow LESS than 75% of a home's current value (so factor in house price falls) can nab really cheap deals.

The exit penalty. Most fixes are loaded with nasty penalties worth £1,000s if you try to exit early, so check. Unless your cheap new deal's savings are HUGE, it's usually tough to outweigh.

What's your 'go-to' rate? Once a fix ends, most slide on to their lender's standard variable rate (SVR). These were once hideously uncompetitive, but government pressure to follow the base rate means many are now cheaper than new deals-usually without a fee.

Nationwide and Lloyds have reduced their SVRs to 2.5%, so waiting may be a winner.

To help, try the "ditch my fix?" calculator at www.moneysavingexpert.com/fixcalc . Tell it your mortgage and penalty details for a ready-reckoner of the rate needed to make a fix-ditch worthwhile.

If, like many, yours is super low or even negative, you're unlikely to save. Alternatively a mortgage broker should be able to help-more on that in a moment.

HOW TO WORK IT OUT

IF you're one of the few where the rate needed looks reasonable, there are a few more questions.

Can you get a cheap enough deal? You'll need a decent LTV and a reasonable credit score. Try best-buy tables to see roughly what's available for your circumstances.

What are the exact fees? It isn't just exit fees from your current lender, the new mortgage may have arrangement, legal and valuation fees.

Do you really want to lose a fix? If you originally wanted the deal for peace of mind, ensure you're ready to wave goodbye to it-especially if it's only a small saving or you're moving to a variable rate, not a cheaper fix.

Trying to forecast interest-rate history is nothing short of a nightmare. Don't just think of short-term gain: longer-term stability is important too.

Next, it's time to do detailed numbers.

Frankly, this can be complex, so all but the most money savvy will find it easier to ask a mortgage broker to do the number crunching and pick a new deal.

To find a local broker, use the phone book or ask for recommendations. Do check they deal with whole-of-market as then they must check all mortgages available to them to find you the best deal.

For the national chains, and more tips on searching for the best new mortgage deal, see www.moneysavingexpert.com/cheapmortgages .

Send me your questions for publication to notw@moneysavingexpert.com

TV Money Guru Martin Lewis is the creator of the Consumer Revenge website www.MoneySavingExpert.com which is packed with info on how to get more money in your pocket.

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