First Time buyer - fixed rate or tracker

dgs31

Hello

Im about to buy for the first time. I can either get a 3 year fixed paying back 444 a month but i get 1095 cash back which will pay all but £300 of my total fees. The other option is 2 year variable which is paying back 398 a month (but i'll have to pay all my fees) but what are the chances of that rate going up during 2 years?

Cheers

Huggins

I'd go for a fixed rate - as at least you know where you stand each month and as per the poster above interest rates are looking very likely to rise.

I have been thinging about interest only? What are the real advantages of an interest only mortgage and the disadvantages - can someone clear this line of thought up for me please!? - as my fixed rate mortgage repayments only really seem to pay the interest on the borrowed money and chip very little of the actual borrowed money.

If i had an interest only - i would be in a similar situtaion with regards to only "really" paying the interest each month, have reduced monthly repayments and could invest the monthly re-payment savings. When i came to sell the hosue I would make the profit - same as if I had been paying the full wack each. Month I undestand that I would eventually have to start paying the mortgage at some point in order to 'own' something - but I am fairlly young? Have I overlooked something that makes them more of a disadvantage than the above?

AndrewSmith

What you have to do is carefully compare the two options.

Lets say for arguments sake that you have the choice of a Tracker rate at 4.37% or a fixed rate at 4.99%. Both for 2 years, both with no extended tie in etc.

(Please note these are not actual rates or recommendations, just figures indicitive for comparison.)

You must consider whether you feel that the BOE base rate will increase by more than 0.62% within the 2 years, and at what point your pay rate would go over the 4.99% fixed. Example,

If the tracker rate were to increase to 4.75% after 6 months then stay at that until 3 months before the end of the 2 years, then go to 5.00%, it is safe to say that you would be better off with the tracker overall.

If you feel that you are likely to cross the fixed pay rate earlier then maybe you should look at the fixed rate.

It will depend on how risk averse you are.

Andy

dgs31

Thanks for the replies, i think i will go with the fixed as ill be able to spend that 1095 cash back on the arrangement fee and solicitors fee's aswell.

David

AndrewSmith

Remeber that the cashback usually comes through about 10 days after completion by cheque (depending ont he lender/scheme), your solicitor will want paying before that.

You probably know that already, just making sure.

Andy