FTB Fixed or Tracker dillema

Moofin

Hi Everyone :beer:

I'm having a bit of a dillema - I keep going back and forward as to what to do. Me and my partner are both FTBs and we've had an offer on a house accepted.

We're trying to decide what we should go for - we've got an 85% LTV and we've found two mortgages. The first is a five year fixed rate which has an interest rate of 5.39% which roughly equates to £920/month repayments or we go for the 2 year tracker with a current interest rate of 3.99% which should come to around £805/month.

If we were to take the tracker we would intend to put the £115 which would have been spent on the 5 year fixed into savings each month with the intention of overpaying on the mortgage/anything went wrong with the house.

I realise no one can predict what will happen in the next 24 months however I would just like to hear other peoples opinions or anyone who is in a similar position.

Thanks for reading - really appreciated

TrickyDicky

Assuming interst rates go up steadily over 5 years, then rates only have to go up by 1.5% for the fixed to have been better than the tracker. The only way for rates to go is up atm. Also, could you afford the tracker if the rates went up by 5%+.

Its your decision.

Moofin

I know, thats the hard part as we'd want to get a new product after the 2 years - maybe a fixed rate but obviously rates will be higher then. But by us being able to overpay in the 2 years we should gain more equity in the house so perhaps that would bring it down further - it may be a little optimistic but it would be wonderful to get to 25% LTV in that two years and get a new mortgage with that rate instead of 15% LTV.

My partner thinks to go with the tracker but i'm still in two minds. Having the fixed 5 years would mean that stability - but the idea of overpaying on our mortgage would be great.

We could afford it if it the base rate went up to 5%, things would be tight - but manageable.

suljka

Moofin wrote: »

I know, thats the hard part as we'd want to get a new product after the 2 years - maybe a fixed rate but obviously rates will be higher then. But by us being able to overpay in the 2 years we should gain more equity in the house so perhaps that would bring it down further - it may be a little optimistic but it would be wonderful to get to 25% LTV in that two years and get a new mortgage with that rate instead of 15% LTV.

Sorry I might be missing something here, but surely if you'd want to get a new product in 2 years time, and are nervous about getting tracker now because you're worried about what rates will do in the meantime, the obvious choice would be to get a 2 year fixed now. You'd be able to get 2 years fixed on a lower initial rate than 5 years fixed, therefore in effect you'd be saving money just as you intend to do with tracker, while also being able to overpay either throughout the length of the deal or at the end of it?! you'd also be free to change to different product after 2 years or stay on their variable depending on your circumstances.
Yes it would provide less security than 5 years fixed, but would also spell less possibility for unpleasant surprises if rates go up - which seems to be your concern with tracker.
Just my opinion

ViolaLass

TrickyDicky wrote: »

Assuming interst rates go up steadily over 5 years, then rates only have to go up by 1.5% for the fixed to have been better than the tracker. The only way for rates to go is up atm. Also, could you afford the tracker if the rates went up by 5%+.

Its your decision.

Assuming rates go up steadily, the tracker would have to rise by more than 2.8% to have been worse than the fixed rate (on average).

I would want to know what the charges were before I could decide.

dimbo61

You are looking at chalk and cheese here by comparing a 2 year tracker to a 5 year fix!
Now are you planning on staying at least 5 years in the property ?
If you use "whatsthecost" you could put the details in about the mortgage you are looking at and see how much you will have paid off after 5 years and 2 years.
Dont forget remortgage costs in 2 years time ( which will fly by)
I an nearing the end of a 5 year fix and have been overpaying during that time with a large part of my mortgage now cleared.
Moving every few years is now much more expensive so think long term a mortgage in most cases is 25/30 years long !!

dimbo61

Rates have never been this low ! now if you and your OH have a good strong relationship and plan on staying in the house for the next 5 years then take the long term fix.
Rates will not be this low in 2 years and you will have paid very little off in 2 years plus you then have remortgage fees and who knows what houses will be worth.
If you go for the 5 year deal you have long term security ( kids planned ?) and your LTV will be 75 or even 60% with overpaying . Just my opinions !!

katsu

If you can afford to pay more than the rate on the 5yr fix, then you have more wiggle room as rates rise on the tracker. If your budget is maxed out with the £920 monthly payment then the 5yr fix might be safest.

We fixed for our first mortgage, remortgaged for another fix when the first ran out and are now on a tracker, as we now have the room in our budget to cope with a rate rise and, whilst rates are low, would rather save the monthly difference to overpay the capital we owe.

Don't forget to think about the fees for moving your mortgage - we are saving money by moving to the tracker we are on but Santander charged us ~£1k to make the move so it takes the first year of savings on the monthly payments to break even. That is why longer term deals are a good idea.