Can you fix it or should you opt for a discount?

Homeowners were this week spared an increase in mortgage costs when the Bank of England kept interest rates on hold - but many pundits reckon it is only a matter of time before they start rising.

Most experts seem to think we will see an upwards move in July or August. Talk of probable rises will have left many home-buyers and people planning to switch their mortgage wondering whether to take one of the discounted rate deals on offer or go for the safety of a fixed-rate loan.
You might imagine that in the current climate, the smart money would be on fixing your monthly home loan payments.
However, mortgage brokers were this week suggesting that broadly speaking, discounted rate deals are still the better bet. That's because many of the fixed rates on offer are quite a bit more pricey than the best discounted rate deals.
A two-year fixed rate deal will typically cost you 5%-plus at the moment (although there are a few cheaper than this), while you can still get a two-year discounted rate deal for less than 4%.
Simon Jones at London-based mortgage broker Savills Private Finance says discounted rate mortgages are still proving popular. While he anticipates an interest rate rise in the next three months, he says rates would have to rise quite sharply quite quickly and stay at that level in order for someone who took out a competitive two-year discounted deal to be worse off than someone who went for a fixed rate.
"If you're an old hand and you've got some slack on your monthly budget, discounts provide exceptional value at the moment," he says.

Nevertheless, for those on tight budgets who are particularly keen to cushion themselves from any interest rate shocks, fixed rates may well prove the best bet.
Ray Boulger at London-based broker Charcol agrees, saying that for many first-time buyers there is a strong argument for going for a fixed-rate mortgage. But he adds: "For those who can afford to accept the risk of rates going up, there is still a strong argument for taking a discount."
If you don't believe the base rate (currently 4%) is going to climb as high as 5.5% in a year or so then buying a fixed rate only makes sense if you need the stability, he says.
Those looking for a fixed-rate home loan should be aware the best deals have now gone - but there are still some very good products around, says Jane Harrison at Bath-based London & Country Mortgages.
Here we highlight some of the best mortgage deals currently on offer.

Discounted rate deals
The cheapest tend to be for two years, says Charcol - it flags up Alliance & Leicester's penalty-free two-year deal with a 2.35% discount off the standard variable rate, giving a current initial pay rate of 3.6%. There is a ?295 lender's fee for loans up to ?125,000 and ?495 for larger loans. The minimum deposit is 5%.

Charcol is also offering an exclusive deal funded by the Woolwich giving a 3% discount for the first year (initial pay rate: 2.95%) and then a 1.2% discount until May 31 2004. There is a ?99 arrangement fee plus penalties within two years, but you can pay back up to 25% each year penalty-free.
Portman building society's new capped discount deal is popular with London & Country. You get 1.3% off the standard variable rate until August 1, 2004 which means an initial pay rate of 4.35%.

The loan is capped at 5.49% until the same date so what you pay won't go higher than this during the two years. It is available to those with a deposit of 5%-plus, and London & Country reckons it is "a really good product". There are redemption penalties until August 2004 and there is a ?300 admin fee.
Savills Private Finance is offering a deal it says is exclusive - a Portman loan where you get a discount of 1.8% off the standard rate for two years, giving an initial pay rate of 3.85%. There are redemption penalties within the two years only, minimum deposit is 5%, and there is a ?300 fee.
It also likes a loan from Nottingham building society where you get 1.96% off the SVR for two years, giving an initial rate of 3.63% for people who can stump up a deposit of 25%-plus. For those who can only manage a deposit of 10%-plus it's 3.83% (discount of 1.76%). In both cases there is a ?295 lender's fee. There are no overhanging penalties and they are available to both homebuyers and remortgagers.

Fixed-rate deals
For those looking for a longer-term deal, National Counties building society's loan fixed at 5.49% for five years (until July 1 2007) is one of the best rates around, says Charcol.
This rate is only available to people purchasing a home (it's 5.79% for those remortgaging), you need to be able to stump up a deposit of 20%-plus, and there is a ?295 lender's fee.
London & Country reckons Britannia building society's 4.79% two-year fix is a best buy. This is also flagged up by Savills Private Finance, along with a Portman deal fixed at 4.85% for two years. Both of these are available to homebuyers and remortgagers, minimum deposit is 5%, there are penalties within two years and a lender's fee of ?295 and ?300 respectively.