Is It Worth Switching From Fixed Rate To Tracker?

TigerLillie

I have a friend who has a fixed rate mortage around 5.5% over 5 yrs taken out last year. He is consdiring paying a ERP and switching to a tracker that would reduce his payments. Is this sensible he says he can add the ERP to the new loan and still save money. If this does make financial sense can anyone recommend a good deal (i keep reading First Direct are good at the moment). Thank you

beecher

5.5% is a good rate! What will he do when base rates start rising again and his payments go up - he'll have a bigger mortgage than before and higher payments. His ERC is likely to be high after only 1 year of a 5 year fix so I think it'd be a very bad idea.

Anon

I asked a similar question (http://forums.moneysavingexpert.com/showthread.html?t=1459063) as indeed have many others - there are a lot of us in this position. The early redemption is significant, but it may work out cheaper in the long run (though if switching to a tracker, the rate will clearly rise as the Bank of England rises, which is likely - though no one knows how quickly and if, therefore, in the short term it would save and recover the early redemption)

Anon

Mike1999

beecher wrote: »

5.5% is a good rate! What will he do when base rates start rising again and his payments go up - he'll have a bigger mortgage than before and higher payments. His ERC is likely to be high after only 1 year of a 5 year fix so I think it'd be a very bad idea.

Totally agree with beecher here - that is a really good rate and I would say exactly the kind of rate that people who are a bit more savvy will be trying to get on now. As beecher says, the base rate will most probably only go up now. Yes you're right it could take a year or so and therefore there is a saving initially but by the time 5 years is up I think your friend will be glad to be on such a rate and not on a tracker.

I've had a look around a few blogs are stating the same thing - one here from back in January which says to go to fixed so I think tell your friend to grit his teeth for a year and he'll be glad!

http://www.mortgagesforbusiness.co.uk/blogs/detail/Time_to_Fix__27th_January_2009/3882/187.aspx

_Andy_

5.5 is a good rate. I think he'd be foolish to throw away medium term security and significantly increase his mortgage balance for the sake of short term savings.

PeteHi

Similar situation to myself, I fixed last year for 5 years at 5.95%, and yes whilst I'd like to be paying back half of what I do now I'm comfortable in the knowledge I know what my (albeit high) monthly repayments are. And my opinion is that 5.95% is a decent deal over 5 years. Rates can only go one way from now on surely?

Personally I'd be daft paying the ERC of £8,000 to switch to a tracker only to see rates back around the 6% mark in 2 or 3 years.