STYLE gurus tell us we should “mix and match” our clothes. This way, they say, we can create numerous outfits by combining a few separate items in different ways.
However, borrowers can mix and match too. Several lenders, including Abbey and Halifax, allow homeowners to combine several mortgages to create a loan that suits them.
This is useful for borrowers who are in a quandary about whether to choose a fixed or variable-rate mortgage.
Melanie Bien, associate director of Savills Private Finance, the mortgage broker, says: “Nobody knows what is going to happen to interest rates, so if you are unsure, you could hedge your bets by mixing and matching mortgage rates.
“Part of your mortgage is on a fixed rate while the other portion is on a variable rate, such as a discount mortgage. Your payments will likely be cheaper, at least initially. And if the base rate falls, the payments on this portion of your mortgage will fall accordingly.”
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You don’t have to split your loan equally between fixed and variable-rate deals. If you do not want your payments to fluctuate too much, you can choose to fix most of the loan. Those with greater flexibility may wish to use a tracker for a larger proportion of their loan.
Although finding attractively priced fixed and variable deals from the same lender can be tricky, Ray Boulger, senior technical director at Charcol, the mortgage broker, cautions that being tempted by one very good rate could be a false economy. “It is no good if only part of the deal is good value,” he says. “Both parts of the loan need to offer competitive rates.”
Choosing loans that vary in length can also be troublesome, Ms Bien says. “If you select a five-year fixed rate that ties you to the lender, you should select a discount over the same period: if you select a two-year discount, you will be stuck on the lender’s standard variable rate.”
Newcastle Building Society offers a fixed rate of 4.8 per cent as part of its five-year mix-and-match home loan. The tracker rate is pegged at 0.1 of a percentage point below the base rate for six months, giving it a pay rate of 4.65 per cent. After six months, the rate reverts to half a percentage point above the base rate for the term of the loan.
Halifax charges 4.99 per cent on its two-year fix, while its discount tracker — pegged at 0.14 percentage points above the base rate — has a cheaper rate of 4.89 per cent.
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The Pattersons from Neath, in West Glamorgan, mix and matched their mortgage so that they could overpay part of their loan without penalties. Clare, 25, and Mark, 31, split their loan between a low-rate fixed deal and a more flexible variable loan, which was pricier.
Clare, who works for Ripples, a bathroom design company in Swansea, says: “We didn’t choose the different deals because they were fixed and variable. We decided to mix and match because we wanted to pay off £10,000 over a shorter period than 25 years.”
Many mortgages allow borrowers to overpay by up to 10 per cent each year without penalty, but the fully flexible deals that charge no fees for all overpayments are usually more expensive.
Rather than pay a higher rate for the whole loan, Savills, the Pattersons’ broker, advised them to fix 90 per cent of their mortgage and pay the higher rate only on the sum they wanted to overpay. The couple divided their £115,000 Bristol & West home loan between a 4.89 per cent fix and a tracker pegged at 0.55 percentage points above the base rate.