2 mortgage deals - can't decide??

Loobysaver

I am stuck between 2 mortgage deals, one is a tracker and the other is a fixed rate.

Any advice would be great.


Option 1



6.04% fixed rate until 2/11/2011

£399 arrangement fee which can be added to the mortgage

£150 reservation fee which needs to be paid on application

Free valuation and free basic legal costs

Mortgage of £47,000 on a repayment basis over 17 years = £369.10



Option 2



6.19% tracker rate until 31/10/2011

No arrangement fee

Free valuation and legal fees
Mortgage as above = £373.03pm

Ian_Griffiths_Halifax

Do you need security of knowing what your outgoings are going to be?

Would you take out a personal loan if the lender said 'your payments will be £200 a month, but could go up to £350 a month or come down to £150 a month'?

Is this your friends recommended adviser who gave you these options as she should have established what is best for you?

Loobysaver

Ian_Griffiths_Halifax wrote: »

Do you need security of knowing what your outgoings are going to be?

Would you take out a personal loan if the lender said 'your payments will be £200 a month, but could go up to £350 a month or come down to £150 a month'?

Is this your friends recommended adviser who gave you these options as she should have established what is best for you?

Hi,

Yes the offers were from the adviser.

I can afford a bit of movement in the payments but not loads. I am swaying towards the tracker as there are no upfront fees but that is on the hope that interest rates don't rocket!

Ian_Griffiths_Halifax

So the Adviser hasn't given you the advice you needed. You shouldn't be needing to make a choice between a Fixed Rate and a Tracker, that's what you are paying somebody for. As I've said on other threads, you get what you pay for.

Ask your self the two questions in my previous post and then make a decision.

£150 up front isn't a massive outlay for security.

Gorgeous_George

If interest rates do not change for the next 17 years, option 2 is cheaper by approximately £659 (over 17 years, reverting to 6.50% after 3 years and adding the aforementioned fees to the mortgage).

Where do you think interest rates will be over the next 17 years? More importantly, over the next 5 years (when the balance outstanding will be greater)?

I like trackers and believe interest rates will fall over the next 3 years. However, the fixed rate offers more security if your finances are risky.

GG

_Andy_

Looby - what's the property value?

Ian_Griffiths_Halifax

Incidently, if you took the 6.09% Fixed Rate but took the mortgage over 16 years, the payments would be only £382.41, which is only £9.38 more than if you took the variable Tracker Mortgage and you said you could afford a bit of movement.

I'd recommend either the Fixed (though I think a better deal may be available than you've been offered) rate over 17 years or if you are comfortable with the slightly higher payments, then take it over 16 years

Loobysaver

_Andy_ wrote: »

Looby - what's the property value?

It's £145K

getmore4less

You are missing the follow on information to be able to make a fully informed desision.

exit fees.
Follow on rates.

One thing to consider is lifetime deals so no more switching.

But based on the information so far here is a cost comparison.

Option 1 payment does not include adding the £399 to the loan it is then £372.24pm

add the £150 to get a better comparison(over 17y) £373.41pm

So option one is more expensive and will be more since the deal is only till 2/11/2011 which means the fees are over a shorter time, lets say 3years which is close enough.

£549 fees over 3 years on a £47k loan

Using whatsthecost

To get option 1 to be equivilent to option2 over 3 years. you need to pay the fees over the 3 years and end up owing the same amount after 3 years, or reduce the borrowings in option2 by the fees, same either way. I will do the add the fees calc.

option 2 6.19% £373.03pm debt at end £41848.43
option 1 6.09% £373.41pm debt at end £42370.64

So option 1 leaves a bigger debt to bring it back down the payments need to be higher as follows,

option 1 6.09% £384.00pm debt at end £41853.64(close enough)

So option 1 realy costs £384pm plugging that back in to option 2

option 2 6.19% £384.00pm debt at end £41416.79 (savings lower end debt)
option 2 6.48% £384.00pm debt at end £41841.50 (higher interest rate same end debt)


So you can take a rise in rates of 0.29% before option 2 costs more over 3years because of the fees on option 1, and the longer it takes for the rate rise the bigger the rise you can tollerate. if rates don't rise then you save over £430.

So it is down to what risk can you take ie: what is you max payment you can afford and do you thing the rates will rise by that much.

There is always the fallback of Interest only so make sure that that option switch is free of charge, or go interest only to start and manage your own capital payments with overpayments(recomended route for those that are disiplined with money)

If the interest rates do go up then after 3 years you will be on them anyway with both options and that £549 of fees will cover a fair amount of that as long as the rates don't rocket too soon.

Ian_Griffiths_Halifax

Do you want security or insecurity?

tomstickland

I spent 3 days trying to make up my mind about mortgage options. It involved loads of spread sheets and messing about until I convinced myself.

I was looking at a smaller mortgage than this, but I did find that lower rates generally made the mortgage more effective, even with quite high arrangement fees. The fees are pretty low on that fix and the rate is good by todays standards.
So I'd be more attracted by the fix.

Find out whether you can pay the fee upfront rather than adding it to the mortgage. If it is added then find out at what rate - quite a few sneaky lenders will charge the full SVR on the fees.