Time to move from tracker to fixed?

jason_z

Hello,

I've had a look around in the form and thought I'd post and ask the collective opinion... every few months my wife and I seem to discuss whether it's time to move off our tracker rate. We're getting 2.19% over the Bank of England rate, so 2.69%, from Cheltenham and Gloucester, and I'm pleased with that. LTV is nearly 60%. But it makes us nervous to think that the rate might rise, and we wonder if a new government means a rate hike. We are tied in till the end of January 2011 on this (I think good) deal, but can switch to a fixed rate for no penalty:

3.59% - 2 years

4.49% - 3 years

5.39% - 5 years

plus the attached product fee (c. £1000 in each case). I am tempted by the two-year, or to stay where we are. But wy wife is tempted by the five-year.

Anyone with or without crystal ball able to tell me what they think is best... change or no change, and if the former then which option?

Jason

phlash

Are you this person's husband by any chance?!!

If not, you're asking very similar questions(!) Suggest you see this thread for people's opinions on the matter.

https://forums.moneysavingexpert.com/discussion/comment/32747009#Comment_32747009

phlash

This is what I wrote in the above thread.

"
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."

jason_z

phlash wrote: »

Are you this person's husband by any chance?!!

If not, you're asking very similar questions(!) Suggest you see this thread for people's opinions on the matter.

Hi Phlash,

Thanks for this! Your answer does indeed work for both posts. No, that isn't my missus, though I agree that it looks like the situation written from her point of view. The only real difference - apart from the slightly different rates - is that we're already in our tracker deal, with nine months of it left to go. So perhaps we'll end up staying as we are...

Jason