Tracker (Capped) or Fixed, any advice please

KerryCakes

Hello folks

I'm a newbie here (well, not to MSE, but to the forum).
I appreciate the fact that we can't predict the future, particularly not the future of interest rates, but I am just here to ask some advice on what people think about Capped Trackers over Fixed rates.

I've been on Fixed rate deals for the entire course of my mortgage, the latest one is coming to an end imminently. My lender has an exceptionally high SVR so I am looking to remortgage elsewhere. I like a fairly long term, 4/5 years ish, and for the first time I am considering a Capped Tracker (mainly Co-op or Britannia). They are 2.49% above base rate and capped at 5.99%. I am currently on 4.8% (the fixed that is due to end soon). I would really rather not be paying more than I am now. Capped Trackers currently at 2.99. I know the rise will be inevitable.

I've done a lot of reading around but have to admit to not being entirely knowledgable on such things, so I am just wondering if you are all screaming out 'No!' at my musings of considering the Capped Tracker?!

I realise the pros and cons involved, but wonder if there is any other information that the more money-savvy of you could possibly point out that I may have missed.

Cheers muchly

KerryCakes

Peelerfart

Have you been offered any fixed rate deals if so what rate are they at?

If you don't want to pay more than 4.8% then under the capped tracker,
B of E rates would need to rise to 2.3% before that point is reached.

2.3% is still historically a very low rate,but then 5.99% capped is not that bad either IMO.

Spangled

How long is it capped for? If it's only 2 or 3 years, then you may lose the protection of the cap just when rates are heading seriously north (conjecture on my part, of course).

Also, what is your loan-to-value? If you're under 60%, there are some decent five-year fixes out there for around 4.5%. Alternatively, First Direct have a lifetime tracker at BoE + 1.89% - but that's not capped.

KerryCakes

Thanks, I really appreciate your thoughts and insight. They are capped for the full 5 years.
Sorry, I'm not 100% sure of the LTV. THe house current value is about 200k and the loan is for 35k.
Looked at various fixed rates, about 4.6-4.8. Co-op (again), Santander.
The other thing I heard was that when the market picks up a little the fixed rates are likely to become a little more competative and rates may fall a bit.
Decisions, decisions!
A non-capped tracker scares me a little, I am not finacially secure enough for that just yet!

Spangled

If you only need a mortgage for 35k and your house is worth 200k then your LTV is 17.5% (35 / 200) - you'll have the pick of the bunch when it comes to mortgages.

Three things to consider then:

Some lenders won't lend if the mortgage is less than £50k.

On such a low mortgage amount, you don't want to be paying any fees, even if it means going on a higher rate.

Again, with such a low mortgage amount, I'd take the chance on a regular base-rate tracker because any movements north in the BoE rate will have (comparatively) little difference to your monthly payments. Say you had a BoE +1.89% tracker - you'd pay about £322 a month now (pay rate of 2.39%, assuming ten-year term) and £422 a month if the base rate rose to pre-recession levels of 5.5% (pay rate of 7.39%). Of course, if cash is tight then go for a fix. You could go for a much longer mortgage term (say 25 years) and the monthly repayments will be even less. But on such a low total mortgage amount (35k) then reducing the term and paying off the mortgage early would be a decent plan.

KerryCakes

Your info and thoughts have been really helpful, thanks very much