Would it be madness to get a tracker mortgage?

house123

There seem to be really good tracker rates around at the minute. So would it madness to get a two year deal even though it’s a given that the base rate can only go up?

The way I see it is there is about a 2% base rate increase between a good tracker and a good fixed rate. So does it seem a sensible risk to go with the tracker or is it a given that the base rate will increase by more then 2% within 2 years?

Fire_Fox

How high do interest rates need to go before you can no longer afford to service your mortgage? What are the chances that you need to claim Support for Mortgage Interest (redundancy, illness, injury) which is payable at a fixed rate and are you able to cover the difference if you need to?

Running_Horse

I wouldn't get a two year anything deal. Mortgages last for 25 years and anything can happen in that time. Just ask all those Northern Rock customers stuck in negative equity and unable to remortgage at all. The only medium term deal (5 to 10 years) I would even consider is a fixed rate for stability.

Gazing_On_Sunsets

Depends on the amount. Do some serious projections and what.ifs, and don't believe the broker when they tell you "ahh, I don't really see the rates rising", leaning forward all conspiratorial and professional. They do not know! Pah!

So work out what you'd pay on various rate rises. I confess mine is a tracker but on a tiny mortgage; even a huge rate rise will still bring my monthly mortgage in to what I have been paying in rent, so for me it's worth it. but you've got to be sure.

clairet707

weve just got a 3 year tracker - 3.09% (BR + 2.59%)

The cheapest fixed rate we could get for the same timeperiod was 4.39%

Weve gone for interest only with a view to overpaying whilst we can afford it, and then if rates start to go up quick we can then change to a fixed but we dont see rates rising that quick as weve only just (literally only just) come out of recession and it would make us plummet back in if they went up quick

sunshinetours

I wouldn't go for the current tracker rates but we did a swap about 18months ago to a lifetime tracker which was BBR + 0.79% but collared at 3% (shame about the collar but it was the best one left at the time).
So for me BBR will need to rise above 2.25% effectively before I see any rise in my basic payments (no doubt it will longer term)

The downside of the current trackers is the margin is so much higher i.e BBR + at least 2% and most of them are only short term deals

chappers

I would agree , be careful with short term deals, when working out which is better don't forget to factor in the fees, also as running horse says be careful circumstances may change within those two years and you may find yourself unable to remortgage and forced onto your lenders SVR.

A few years ago we tinkered about with our mortgage, we couldn't have hit it any better the first month into a two year discounted fixed deal the interest rate went up and rose again a further 4 times in those two years, we then took out a tracker and 3 months in the rate dropped and continued to drop to the current rate.
A few months ago I worked out how this had affected us and when all the fees etc were taken into account(some of which are added to the life of the mortgage) I think we were actually £65 down over a 5 year period, definitely not worth all the hassle.

Running_Horse

Lets be honest. Getting onto a tracker a few years back was incredible good fortune. But it wasn't genius or financial wizardry. We just got lucky. 99% of people cannot second guess long, medium, or even short term interest rate fluctuations (who predicted current low, or historic high rates?). Get the mortgage you can afford, add in a little wriggle room, and hope for the best. Just don't try to be too clever for your own good.