Opinions please, which one

lostinrates

For various reasons we want to stick with our bank, not look for other deals. We're umming and ahhing about the potential of future interest rates, where up is the only way, but the question is how long.

Fixed rate

2 ys: 4.09%

3 ys: 4.59%

4 ys: 5.49%

Tracker is 2.64% above base.

which one would you choose. The difference between the tracker and the four year is obviously significant, and we could over pay, but knowing the longer term fix would be easy for budgeting. My feeling is the four year. DH likes the two year, though we think that's when interest rates will probably be kicking in again, making the decision then more painful.

beecher2

It depends on the size of your mortgage, and how much of an increase in rates you can take. Also the ERC - if you went on the tracker, how much would you have to pay to get out of it? You haven't mentioned fees either.

How much is the SVR - I'd be tempted to stay on that, or go for the 3 year deal

lostinrates

Thank you Beecher2.

I think, DH has decided to gamble a little with a two year tracker. We'll over pay the max 10% and save the difference to cushion us against an inevitable rise. The svr is 2% above base, the fee for leaving the tracker early would be a pretty uncontemplatable £12 k.

The mortgage is very large, and I think 4.7 x salary, but DH feels the gamble a worthwhile one. His pre tax wage goes up in biggish chuncks.

beecher2

I don't understand why you'd leave an SVR of 2% above base for a tracker 2.64% over base.

lostinrates

beecher2 wrote: »

I don't understand why you'd leave an SVR of 2% above base for a tracker 2.64% over base.

This is a new mortgage, and this is the tracker the bank are offering us, reverting to svr at the end. I presumed that was normal.:o edit: I see bow, where my OP was not clear. By sticking with our bank, I mean we have other banking arrangements with them and they are, on terms other than mortgage rate being pretty flexible to facilitate this.

beecher2

Ah I see, I did think you were coming to the end of a deal and looking for a new one.
I'd personally take a fixed rate or be looking elsewhere for a lifetime tracker with no exit fees but my circumstances are different from your own. Sounds like your decision is made anyway and that you have a safety net.

phlash

Personally I would choose the tracker. (Presuming it is BoE base rate tracker)

There have been many many key figures that have indicated that within the next couple of years interest rates will remain low.

My analysis on the matter, for what its worth, agrees. As an economy we can't really afford to raise rates, and every 0.5% increase now is a relatively large increase in current rates. i.e. Raising from 0.5% to 1% is a 100% increase in rates, whereas 5% to 5.5% is only a 10% adjustment in interest rates.

For BoE base rate to get to 2.5% which would put the tracker above on par with the fixed rates quoted, the BoE would need to raise interest rates by a relative amount of 400%. There would have to be some serious inflation kicking in to cause that kind of relative movement.

That's my opinion on the matter, but I'm sure there are those that say fix. But with a 2% buffer on the tracker and only a 2 year period (short in economic terms and interest rate terms) then I would opt for the tracker.

EDIT to add:
I would perhaps pay out each month as if you were paying for the 4 year fix. i.e. Pay tracker mortgage + 10%, plus the difference to the amount you would pay for the fix into a savings account. You can then keep a clear eye on whether you are 'in or out' of the money by being on the tracker. If the tracker reverses and start s costing more because interest rates rise, you will be able to use that surplus savings account and know that its still only costing you what the fixed term mortgage would of, right down till you emptied the savings account. But I doubt that would happen, and you may be pleasantly surprised after 4 years when you see that the size of your mortgage could be reduced by the amount of excess savings built up.

Thrugelmir

I would opt for the tracker and overpay by the maximum amount allowed.

Rather than focusing on where interest rates might be in the years ahead. Concentrate of paying off the capital as quickly as possible. That's the way to save money, simply put borrow less.

Banks like customers to take out fixed rate mortgages as it locks them in.

LillythePink

I totally agree with the replies.

We are taking out a mortgage - again large, but I figured that if interest rates were to rise then it would be slowly therefore the tracker which we are taking out still means that we are paying less than a fixed - our rate is 2.49 above base so it's 2.99%.

We are aiming to overpay (or at least pay into a savings account in the short term and when there is a sizeable chunk pay it into the mortgage)

I don't see a point in fixing for only 2 years - if it was a budgeting thing, then go for the longer term - but the tracker is the most attractive option at the moment.

lostinrates

Thank you everyone (hello Thrugelmir!).

Yes, having spoken to DH we have agreed the tracker with maximum over payments and the extra payment as if paying one of the higher fixed rates (still in discussion over this, Cameron and Clegg have nothing on us ) set aside as Phlash describes.