tracker or fixed

casper2010

Hi, advice and opinions please.

Am coming to the end of 5yr fixed at 4.79%, Alliance & Leicester have told me I will go automatically on to a tracker as part of the original deal / product.

The new tracker is currently 1.49% (0.99% above BoE base) ,
No tie in,
No fee,
Unlimited over payments,
0.99% above BoE base for term,
£130,000 over 40 years remaining on mortgage.


Does this sound like a good tracker deal??

Would a 5yr fixed 4% be better if the BoE rate goes up to 6% or 7% over the 5 years?

Many thanks

Casper

samizdat

1. Nobody can reliably predict the future path of interest rates.

2. On the other hand, your current tracker deal is really good. Deals like this are no longer available in the market, and, who knows, may never be again. Supposing rates do rise above 4% in the next 5 years, it seems implausible to me that they would spike higher early on and then rapidly fall back in time for you to remortgage to another fixed rate in 5 years time. Therefore, in my opinion, it is really only worth going for a fixed rate if you are able and willing to lock in for 10 years or more. Even then, I would not personally do it, but at least such a long-term fix would have the potential to offer meaningful protection against rising rates.

3. My advice, which obviously you should not rely on, is therefore to take advantage of the low rates while they last, and save as much as you can for the day when they eventually rise, as they inevitably will.

dimbo61

If when you do go on the tracker you kept your mortgage payment the same as you are currently paying you would feel no difference in your day to day living costs but you would then be overpaying each month!
Now you have a very long term 40 years so will pay very little off over the first 5/6 years
You would only be worse off if the BOE interest rate went above 3% which seems unlikly given the current fragile state of the housing market.
So stay on the tracker deal and overpay each month and IF you can build up savings in cash ISA,s £5100 each.

[Deleted User]

Absolutely agree with Samizdat. You'll be 2.5% below the fixed rate for now. It may take 2 to 3 years for your tracker to get to 4%. Then it would need to go to 7-8% for the last couple of years to end up costing you more than the fixed (ie so you average out at 4% or more), and that's before accounting for a fee.

If your tracker wasn't so good, I might be tempted by a fix, but that's a hell of a rate. I'll have it if you're not interested!

Peelerfart

yup agree with posts above.

Overpay your tracker and get that term down, who wants to be paying interest for 40 years?

Engeroosi

Agree!!!! No brainer if you ask me!

casper2010

Hi

Thanks ever so much for your replies.

(Meant to add also - the fixed ends in feb and tracker starts march 1st)

Have been thinking about the term, we started off 5 years ago with it at 15 years paying a big minimum payment then needed to free up cash for home improvements so changed it to 40 ish years and only paid low minimum.

We have left it at 40 years and overpaid each month since work all done.

Is it more expensive to pay £600 month plus £600 overpayment with a 40 year term?

If it is more expensive I will change the term again to 15 years and pay large minimum.

I have been trying to work this out but can't really reason either way?!?!? doh

many thanks

NB zx81 - A&L are not charging a fee to go on to the tracker so I think it is a good deal (although HSBC has good £99 fee too)

Pincher

casper2010 wrote: »

The new tracker is currently 1.49% (0.99% above BoE base) ,
No tie in,
No fee,
Unlimited over payments,
0.99% above BoE base for term,
£130,000 over 40 years remaining on mortgage.

I'll swap you for it if you like.

I would save the overpayment money in a deposit account that pays 2.5% or more, and pay a lump sum when interest rate goes up.

samizdat

casper2010 wrote: »

Have been thinking about the term, we started off 5 years ago with it at 15 years paying a big minimum payment then needed to free up cash for home improvements so changed it to 40 ish years and only paid low minimum.

We have left it at 40 years and overpaid each month since work all done.

Is it more expensive to pay £600 month plus £600 overpayment with a 40 year term?

If it is more expensive I will change the term again to 15 years and pay large minimum.

Keep the mortgage term at 40 years. It is a great advantage to have a low minimum payment obligation, which you do have with such a long term mortgage, whilst being able to overpay should you choose. If you reduce the term, you lose that flexibility.

The other thing you should consider is that, from March 1st, you could actually be better off if you only make the minimum payments on your mortgage and deposit any surplus funds in the best available instant access deposit account, and if otherwise unused you should first use your ISA allowance of £5100.

The market leader taxable account pays 2.89% at the moment. If you are a basic rate taxpayer, that is worth 2.31%. Meanwhile your mortgage rate would be only 1.49% gross (assuming no change in Base Rate), which is equivalent to about 1.5% after taking account of the monthly compounding of your mortgage interest rate.

By doing this, you would be making money while also increasing your safety net of available savings, which would otherwise be disappearing into your bank's coffers.

One other possibility is that your mortgage _may_ allow you to reborrow some or all of the overpayments that you make, or take a payment holiday up to some proportion of your overpayments. You have not mentioned this, so it is also possible that your mortgage does not have this flexibility, but it is something you should look into. For example, if you could do this, you could wait until March 1st and then re-borrow all the overpayments you have made. You could then put these on deposit and make even more money. Just an idea, and bear in mind you should watch to see if Base Rate changes and consider your tax position.