Savvy homeowners considering whether to lock themselves into a fixed-rate loan

WE all know that interest rates are at record lows levels, and that those with tracker mortgages are rubbing their hands in glee. Indeed, the Council of Mortgage Lenders said this week that mortgage costs are at their lowest since 2004. But it won&rsquo;t last for ever. With some suggesting that the economy could start looking up later this year, it is time to start thinking about when interest rates will rise. So the question for those with trackers is: should you be thinking about changing your mortgage to a fixed-rate now?<br /><br />The general consensus is a cautious &ndash; and in some cases not so cautious &ndash; yes. David Kuo, director at financial website The Motley Fool, says: &ldquo;Interest rates aren&rsquo;t going to go much lower from here. The Bank of England has fired its last bullet as far as rate cuts are concerned. From here on, rates can only go in one direction &ndash; up &ndash; so fix your mortgage interest rates now, and fix it for as long as you can.<br /><br />At mortgage broker Savills Private Finance, Melanie Bien says that although she expects mortgage rates to remain low for at least another year, &ldquo;some lenders are already increasing their five-year deals, and we expect others to follow suit.<br /><br />However, she acknowledges that the savings to be made from trackers &ndash; particularly those that were adopted in the recent past &ndash; are not to be sniffed at. Deciding whether to fix depends on your view of how interest rates will go, and also the rate you have. Of course, there is no guarantee that fixing now will be the best move. &ldquo;It depends what sort of person you are, whether you want security or want to take a gamble,&rdquo; says Bien. However, if you do think that fixing is on the cards for you, it is best to monitor the situation and be ready to take the plunge. &ldquo;There is a danger of waiting too long. By the time interest rates start to go up, then it&rsquo;s too late,&rdquo; Bien says.<br /><br />Steve Olejnik, head of sales at broker Mortgages for Business agrees that now is the time to start seriously looking at your options. He says: &ldquo;A couple of weeks ago we started recommending people to move into fixed rates. The cost of three- and five-year money in the market is very cheap. They are the lowest they are going to be, if you want stability over the next five years then this is the time to fix.<br /><br /><strong>RISING</strong><strong> </strong><strong>QUICKLY</strong><br /><br />He predicts that rates will stay at current levels for 12 to 18 months, and then rise to around the four or five per cent level. Given that when they do go up, rates are likely to rise quickly (and take the cost of borrowing with it, of course), the benefits that you get from your cheap tracker now are not worth it. If you fix now, &ldquo;you might be behind the money in two years, but end up winning over the five-year term.<br /><br />As well as interest rates, LTV (loans to value) is also an issue. If the LTV goes below 80 per cent, then borrowing can start to get expensive. At the 90 per cent level, it can be hard to get a mortgage at all. This is actually a question about the drop in house prices. Savills estimates that prices still have 10 per cent further to fall, and Melanie Bien points out that if this was to happen, then some people might find it hard to find a lender because their equity will be wiped out, another reason to fix now.<br /><br />Others, of course, think that prices might fall even further. Again, you need to take a view on this as part of your calculations. At the moment, those with a 25 per cent deposit can still find lots of attractive rates (see box).