Is it right to fix your mortgage now?

miaxmia

My daughter has been advised to fix her mortgage as interest rates are on the up and could go up by 2% (this is the advice that has been given). I can't help thinking it is bad advice. With a £600 set up fee and the rate is 0.25% greater than she is currently paying, unless rates go up next week she is starting out in arrears in any case. Any opinions/advice from any experts welcome.:)

hillcats

It really is a personal choice to fix or not, it depends if you really need to know your outgoings to the exact penny every month. I hope your daughter can afford rates to rise "at least" back to where they were before this crash (5.75%) plus any % added by the lender.

Fixed, Tracker or Capped all have their own risks, make sure she can afford an increase as I do personally believe that the rates will eventually rise above and beyond what they were to pay for this credit crunch as they call it, the money has to come from somewhere afterall.

I wouldn't be surprised to see near 8 or 9 % in a few years....

Any good tracker mortgages (that many of us have on here, myself included) have now long gone and I dont think low trackers will be seen again until rates have increased as I mentioned above.

What deal was the broker trying to sign her up to?

Good luck with your choices.

miaxmia

4.49% fixed for 2 years with a £600 set up fee - her current standard variable is 4.24%, so I am thinking interest rates need to start going up straightaway to benefit as for starts she has £600 to recoup. Her mortgage is £145000

milliebear00001

This has more to do with your daughter's income projections and appetite for risk - both of which are personal to her.

I have just applied for a four year fix. I have no idea what interest rates will do, but I do know I can't afford to pay my mortgage comfortably if interest rates go up a few percent in the next two-three years. I am very risk averse, have a tight budget anyway, and need the security of knowign exactly what I'll be paying for the next four years.

beecher2

She may prefer the security of a fixed rate to the gamble - up to her surely? The savings over 2 years have to be weighed up to know if she'll be out of pocket or not - and it is just guesswork to judge this. I'd think a 5 year deal would be a better option though and that'd save forking out another arrangement fee. Doesn't have to be with the same lender if her credit file/salary multiples/LTV stack up.

madeupname1

Is this the best fixed deal she could get? The 4.24% SVR sounds like Santander. She may be able to secure a lower fixed rate with a different lender, well below the 4.24% depending on LTV. If your daughter is willing to fix at a rate higher than the SVR, the question I think she needs to ask herself is whether the worst case cost of fixing (i.e. £600 + the additional monthly payments) is a price worth paying for certainty.

GMS

miaxmia wrote: »

My daughter has been advised to fix her mortgage as interest rates are on the up and could go up by 2% (this is the advice that has been given). I can't help thinking it is bad advice. With a £600 set up fee and the rate is 0.25% greater than she is currently paying, unless rates go up next week she is starting out in arrears in any case. Any opinions/advice from any experts welcome.:)

Rates COULD go up by any amount. Anyone 'advising' based on a rate prediction should be shot. Nobody knows what will happen. General concnsus is rates have to rise but the timing of it is pure guesswork. Even the commitee who set the rates are at odds with each other!

To fix or not MUST be a personal choice. A broker should not push a client down a particular avenue. If your daughter is happy to go on to a Standard Variable or a Tracker then she should be made aware of the possible changes to rate and make her own decision. If she prefers to budget and know what she will pay each month then a fixed is the way forward.

I see your point of her being in 'arrears' from day one of a new deal when compared to SVR but if/when rates increase SVR is likely to do the same, as are fixed rates. Some people would pay a higher rate for a longer term fixed rate, such as 5 years.

Could be a case of short term pain for long term gain.