Which co-op mortgage to choose - fixed or capped tracker

graham17_2

Hi,

My fiancee and I have just had a bid accepted on a house and the survey will be getting done tomorrow.

Our plan is to get a mortgage on a 5 year deal with the co-op as they have some very good rates.

Basically we were looking at a fixed rate mortgage so we know our monthly outgoings. But I've also noticed they do a capped tracker rate.

The fixed rate on a 25% deposit is 4.99% with a £995 arrangement fee.

The capped tracker is the base rate + 2.49% (so currently 2.99%), capped at 5.99%, with the same arrangement fee.

Both of these are 5 year deals.

I looked roughly on BBC's mortgage calculator. We're paying £105k for the house (and hopefully the survey values it at that, or more), and putting down a 25% deposit. So the mortgage would be £78750. From what I gather on BBC's mortgage calculator, the different amounts we might pay are:

Capped Tracker (current rate): £376.45 a month
Fixed Rate: £465.15
Capped Tracker (at maximum 5.99%): £512.87


So, if we chose the capped tracker over the fixed rate, we'd be saving £88.70 a month just now.

If it hit the cap, we'd be paying £47.72 more than the fixed.


So it's obviously a bit of a gamble depending on what rates do. We'd save now going with the capped tracker, but would we save in the long run... (the million dollar question :-) ). Realistically, if it did hit the cap, we'd not be paying too much more a month, but we'd be saving a fair bit more just now.

So just wondering what people think would be the best one to go for? Obviously we don't know for definite (otherwise we'd be very rich :-) ), but just thought I'd get some opinions.


Thanks in advance,

Graham.

lindos90

Capped tracker, now thats interesting.

I had noticed that the co-op did 5 year fixed deals, but it is only for a 25% deposit, (whereas we have over 40% deposit and assume that means we could only go for the 3 year fixed deal...unless anyone knows differently!)

A capped tracker maybe the best of both worlds, with the only gamble being that the interest rate stays below a certain percentage for part of the 5 years, and as long as we work out if we could afford the repayment if it reached 5.99%, it maybe worth the risk (perhaps overpay the difference until it hits 5.99%)

Thanks for some food for thought (only thinking about houses and mortgages at the moment, its driving me crazy!)

Thrugelmir

Take the capped rate. Pay the difference between the capped and fixed rates off your mortgage as additional sum.

Then you'll benefit from the lower rate. Reducing your capital outstanding for as long as rates remain low. Should rates increase. The increase will lower as you've paid off some capital.

As important as the interest rate is. Its reducing the capital balance that will save interest. Reducing the term of the mortgage as well.

graham17_2

Hi,

Thanks for the replies.

With regards overpaying to make up the difference, I guess with the payments being £376.45 a month and I'm able to overpay 10% with no charge, I'd be able to overpay about £38 a month - is that correct?

Just wondering how much difference that will make as it's obviously less than the difference between the capped tracker and the fixed rate? In a year, I guess that would be just short of £500. Will that make a big differences should rates rise.

So do people not expect the base rate to rise more than 2% anytime soon if you think the capped tracker would be the best option? It looks as thought it may rise very slightly within the next few months (or so some people think), but obviously we don't really know.

Thanks,

Graham.

jem16

lindos90 wrote: »

I had noticed that the co-op did 5 year fixed deals, but it is only for a 25% deposit, (whereas we have over 40% deposit and assume that means we could only go for the 3 year fixed deal...unless anyone knows differently!)

You do have a 25% deposit - you have more than a 25% deposit.

I would have thought that with a 40% deposit you have the choice of deals but ask the Co-op and I'm sure they will tell you.

benjo

Thrugelmir wrote: »

Take the capped rate. Pay the difference between the capped and fixed rates off your mortgage as additional sum.

Then you'll benefit from the lower rate. Reducing your capital outstanding for as long as rates remain low. Should rates increase. The increase will lower as you've paid off some capital.

As important as the interest rate is. Its reducing the capital balance that will save interest. Reducing the term of the mortgage as well.

This looks like great advice,

"With regards overpaying to make up the difference, I guess with the payments being £376.45 a month and I'm able to overpay 10% with no charge, I'd be able to overpay about £38 a month - is that correct?"

Read the T & C's/ Key Facts carefully - but I think you are probably wrong on the above. The 10% allowed overpayment usually means that you can make overpayments of 10% of the outstanding balance per year, so £7875.00 in the first year without penalties, reducing in the second year and so on - but do check the small print.

If you did choose the tracker and paid the full amount of £512.87 per monrth you would be overpaying by £136.42 per month. If you overpayed by this amount each month for the full term you could save yourself over 10k in interest and cut upto 8 years from the term of your mortgage (very approximate - there are many overpayment calculators on the MF forum).

Thrugelmir

graham17 wrote: »

Hi,

Thanks for the replies.

With regards overpaying to make up the difference, I guess with the payments being £376.45 a month and I'm able to overpay 10% with no charge, I'd be able to overpay about £38 a month - is that correct?

Just wondering how much difference that will make as it's obviously less than the difference between the capped tracker and the fixed rate? In a year, I guess that would be just short of £500. Will that make a big differences should rates rise.

So do people not expect the base rate to rise more than 2% anytime soon if you think the capped tracker would be the best option? It looks as thought it may rise very slightly within the next few months (or so some people think), but obviously we don't really know.

Thanks,

Graham.

With long term debt. Even small overpayments add up over the full term.

The lenders like us to take 25 years mortgages as its highly profitable. The term of the mortgage is better suited to ones personal circumstances and budget.

graham17_2

benjo wrote: »

This looks like great advice,

"With regards overpaying to make up the difference, I guess with the payments being £376.45 a month and I'm able to overpay 10% with no charge, I'd be able to overpay about £38 a month - is that correct?"

Read the T & C's/ Key Facts carefully - but I think you are probably wrong on the above. The 10% allowed overpayment usually means that you can make overpayments of 10% of the outstanding balance per year, so £7875.00 in the first year without penalties, reducing in the second year and so on - but do check the small print.

If you did choose the tracker and paid the full amount of £512.87 per monrth you would be overpaying by £136.42 per month. If you overpayed by this amount each month for the full term you could save yourself over 10k in interest and cut upto 8 years from the term of your mortgage (very approximate - there are many overpayment calculators on the MF forum).

Hi,

Thanks for the above. I actually thought afterwards I had got that wrong and as you said, it would most likely be 10% of the outstanding balance. That makes more sense :-)

When you say if I took the tracker and paid the full amount, do you mean the full amount (if it were at 5.99%), rather than the absolute full amount I could pay as I guess I could still pay even more than that within the 10% (if I for some reason managed to come into some money :-)).

Just trying to make up my mind whether to take the gamble as for all I know, interest rates could go up by more than 2% (therefore taking it higher than the fixed 4.99%) soon, or that could take a while. Even if they go up by a percent or so soon, that's reducing the amount I'm saving. Not an easy decision. We're sort of leaning towards the fixed as it's our first place and there's no gamble as we know what we'll be paying regardless - though it is very tempting to go for the capped tracker...

Thanks again,

Graham.

benjo

In terms of overpayments, there are some really smart people on this forum who can advise by how much overpayments vs savings rates will gain you - Im not one of those.

All I can say is that it really is worth playing around with the overpayment calculators to see how much a difference even a modest amount makes.

Personally, if I could afford to pay off the full 10% each year, still having an emergency 'oh my goodness the roof fell in' savings pot and live a little - I would pay off the full 10% allowed.

tek-monkey

Hadn't considered a capped tracker, is something to think about.

Bean_69_99

ive been looking at these deals...

exactly same situation as you, looking at 105k house value with 25% deposit...

have you looked at the 3 year +1.89% tracker?

Thats even less than the fixed one so allows you to overpay even more while the rates are low...

this probably doesnt help much as it gives you another option, im in the same boat and cant work out wether its worth the risk to get more payed off in the short term an hope the Base rate doesnt go above 4% in three years... im not so sure!

For some reason i hadnt seen the capped tracker... with it being ''only'' .6% more a month in the short term its only £25 a month more in interest.... but great safety over 5 years!...

looks like the choice to go for!