Tracker Mortgages

luckyfool

Kavanne wrote: »

Well, I have a tracker that tracks 0.75% above the base rate... Just had a letter saying 'your mortgage rate is no 3.75%'..... How can that not be good?! (Unless interest rates are 15%, then it's bad bad bad......)

But if the OP is applying for a tracker now then the likely margin will be more like 1.79 - 2% over base . . . which would lead to a very expensive mortgage when rates eventually go back up. For many people the opportunity to fix their mortgage just now for 2 yrs at 4.5% or for 5 years at just under 5% is pretty attractive. At least you can budget going forward.

luckyfool

Jonbvn wrote: »

ATM, you will find most FR mtg's at a much higher rate than trackers. Think of the higher cost as an insurance policy, if rates should increase.

No they are not . . . at least not for new customers. Fixed Rates and Tracker rates are currently broadly similar in the their headline rates, if anything cheaper fixed rates are available. Of course if you already have a tracker then things are different (my current deal is 0.39% above base giving a current rate of 3.39%), but unfortunately it expires in January and assuming I take a new deal I can either stay on the SVR at 5%, or fix my mortgage for 2,3,5, or 7 yrs at just over 5%. The tracker products available to me from my current lender are all within 0.1-0.2% of that . . . and there is no point in me paying a £995 arrangement fee to get a tracker rate almost identical to the SVR I already have which is effectively a tracker due to this lenders policy for their SVR not to be more than 2% above base.

Kavanne

Wutang wrote: »

Kavanne would disagree with this - "How can that not be good?! ".

The answer to this is clearly, when rates go up

I said that in my post......

whiskey1983

I've just switched from NR fixed (6.24%, 109% LTV) to HSBC lifetime tracker (+1.24%, 80% LTV) and as interest rates have gone down I'll now pay 4.24% interest which saves me £990 per year. As other posters have said, trackers are great when interest rates are falling but not so good when they go up.

It might be an idea to work out how much you could realistically afford to pay per month then ask your advisor what interest rate would give you that payment - for example, I can afford £1000 per month and for the payment to rise to that my mortgage rate would have to increase to just over 13%. I'm happy to take that risk with my mortgage but having the figures in front of you may help you. You could also ask if you're able to move to a fixed deal if interest rates go up too, just as piece of mind.

daveyjp

"trackers are great when interest rates are falling but not so good when they go up. "

Why? Don't other mortgages increase when interest rates rise?!

Trackers can change your monthly payments regularly so you need enough slack in your monthly budget to cover these fluctutations.

If you are on a fixed rate for a few years at say 4% and over these years interest rates rise to say 8% can you afford the jump from a 4% rate to an 8%+ rate?

5.5 years ago we took out a 0.75% above base for life fully flexible tracker mortgage (base rate then was 3.25%) - best thing we ever did, our mortagage isn't large so we have overpaid ever since we took it out. I checked last night and it has a minimum interest rate applicable of just 1%, so BOE needs to be below 0.25% before we don't get the full benefit of the BOE +0.75%

This overpayment means we are accustomed to paying more on our mortgage than is actually due so if rates increase dramatically we know we can afford the increase.

It also means every few years we aren't spending hours looking for a better deal and having to pay ever increasing arrangment fees for a new short term offer.