Fixed or Lifetime Tracker?

V6Matt

getmore4less wrote: »

V6Matt wrote: »

following deals.

Fixed - 2 year fixed at 3.14% with ING (75% LTV)£155 valuation, £195 booking, £750 arrangement

Lifetime Tracker - 1.89 plus base for life of mortgage (65% LTV), thus currently - 2.39% (First Direct), £99 booking fee, £160 valuation

With the lifetime tracker, you can choose to change to something better at any time, this will almost certainly only be another tracker, timing a fixed deal to actual save money is near on impossible(few get lucky) and whatever happens to base and the +% margins fix are going to be more than trackers till we get back to normal base rates so around the 5% mark.

With the fix unless the follow on rate is a good tracker or SVR(which it isn't) then you are in a situation where you are almost certainly going to need to change to get a better deal, new fixes and trackers etc will all reflect the base rates at that time so you could switch either. So another set of fees in 2 years.

So once you accept that the tracker will be the better followon 2 years then there is only the 2 years to think about. ( don't forget that you have the extra fees as well as the extra interest to think about)

So with a 2 year deal and say £800 more fees we can do a simple what if.

Say the base stays low for 1 year then rockets what rate can it go to before you area worse off(you can do other what ifs say 0.05% rise every 6months etc)

So lets do the numbers £97500(£150k*0.65) 20year term 2 year fix.

Fix (+800 extra fees)
£98300 @ 3.14% £524pm after 2 years £90,983.47

tracker (has to better this target with the same monthly payment)
£97500 @ 2.39% £524 after one year £93,498.61

To better the fix target of £90983 the rate can rise to 4.08% a rise of 1.69%

That is significantly more than the 0.75 it might first appear thats the power of overpayments and the cost of £800 extra fees.

Now no one knows when or how fast the rates will go up.

But as you say you don't need the fix for financial reasons so you are IMO always better off with the best variable rate going.

Thanks for the calculations.

Just trying to follow your numbers (sorry for being dim).

So you have included the £800 fees of the fixed and thus £98300 and your saying that after 2 years I would still owe £90983.47?

With the variable I would lifetime tracker I would still owe £93498.61? Thus using simple (but I am sure misguided logic), I will have paid off less via this method?

I think I have misunderstood something here

Understand that the £800 fees play a big part in the overall picture

How do your sums look on a 5 year fixed at 3.89% and £99 booking fee?

I think my main concern with the lifetime tracker is that even though it seems competitive now, say the BOE went to 4 and thus a total rate of 5.89. It seems tracker rates have been at 0.01 above base, but figures posted by yourself suggest that the rate of 1.89 is closer to the average lifetime tracker rate and thus is it really such a good deal now? I will probably change mortgage after 2-5 years but I would like to future proof the mortgage as much as reasonably possible.

GMS

You cannot future proof your rate. Nobody knows what will happen to base rates. Pick up any paper on any day and you will get a different prediction.

Trackers are attractive at present as they are the lowest rates generally. Fixed rates have come down to almost the same rates but offer the obvious security of payments.

You could choose a trakcer and pay low for 2 years or more, or you could choose a tracker, see rates rise to where the current fixed are, then above that and wish you had gone for a fixed rate.

Medium to long term fixed rates would be the choice for me. Personally I cannot see a 0.5% base rate for much longer.

V6Matt

GMS wrote: »

You cannot future proof your rate. Nobody knows what will happen to base rates. Pick up any paper on any day and you will get a different prediction.

Trackers are attractive at present as they are the lowest rates generally. Fixed rates have come down to almost the same rates but offer the obvious security of payments.

You could choose a trakcer and pay low for 2 years or more, or you could choose a tracker, see rates rise to where the current fixed are, then above that and wish you had gone for a fixed rate.

Medium to long term fixed rates would be the choice for me. Personally I cannot see a 0.5% base rate for much longer.

Thanks GMS and also something than an ex keeps suggesting. Offset mortgages. I have around £25-30k worth of savings in addition to this. At this level would it be worth considering an offset? Or is the benefit marginal once you take into account the rates of 3% you get from savings (before tax) and the higher initial interest rates?

dimbo61

A mortgage is not a sprint more a 10,000metre run so why think in terms of 2 years when the mortgage term will be 25 years and sometimes even longer!
YBS have a offset fix for 5 years which gives you the security for 5 years and the chance to build up savings in the offset and it also has (friends and family!!!)

michaels

Look at the YBS 5 year fixed offset - quite a big fee but 5 years at 3.79% and the option to use the offset to in effect 'overpay' if you have the chance to which you can not do with the HSBC fix.

Another issue with a short fix/discount is that in 2 years if prices have fallen sharply you will no longer have enough equity to qualify for the most attractive rates.

V6Matt

michaels wrote: »

Look at the YBS 5 year fixed offset - quite a big fee but 5 years at 3.79% and the option to use the offset to in effect 'overpay' if you have the chance to which you can not do with the HSBC fix.

Another issue with a short fix/discount is that in 2 years if prices have fallen sharply you will no longer have enough equity to qualify for the most attractive rates.

Just checked their site and it seems to be a 3.99% with a 25% deposit, £1k arrangement, reverting to a high 4.99% SVR. Obviously I could switch at this point.

That is potentially attractive, as I look over the 5 year period though. As my savings of say 25-30k will help drive down the interest for the period, then I can change mortgage so I am not hit with the silly SVR.

getmore4less

So you have included the £800 fees of the fixed and thus £98300 and your saying that after 2 years I would still owe £90983.47?

With the variable I would lifetime tracker I would still owe £93498.61? Thus using simple (but I am sure misguided logic), I will have paid off less via this method?

But the tracker is ater one year not the two of the fix, then the rate can change upto the value I quoted before you end up owing more after 2 years on hte tracker(so after 2 if the rate went to that value you would be equal.

If rates stay low for 2 years then you would owe £89,400.53 a saving of over £4k over the fix and most likely be on a lower followon rate making another.

The trade off is that when rates rise you might not gain all that £4k or might end up worse off at the end of 2 years.

getmore4less

V6Matt wrote: »

Thanks GMS and also something than an ex keeps suggesting. Offset mortgages. I have around £25-30k worth of savings in addition to this. At this level would it be worth considering an offset? Or is the benefit marginal once you take into account the rates of 3% you get from savings (before tax) and the higher initial interest rates?

FD margin for offsets is a tiny 0.2%.

V6Matt

getmore4less wrote: »

But the tracker is ater one year not the two of the fix, then the rate can change upto the value I quoted before you end up owing more after 2 years on hte tracker(so after 2 if the rate went to that value you would be equal.

If rates stay low for 2 years then you would owe £89,400.53 a saving of over £4k over the fix and most likely be on a lower followon rate making another.

The trade off is that when rates rise you might not gain all that £4k or might end up worse off at the end of 2 years.

Thanks, I understand now

How would it compare potentially to that 5 year fixed at First Direct or even potentially the 5 year fixed offset at YBS (with 25-30k savings), as I realise now that a 2 year fixed is a bit short term.

Sorry for asking you do to the lackie work, not quite sure how you have come to those calculations.

Does the picture still look the same?

michaels

I always do my calcs based on total cost of fees plus interest over the period in question when comparing two products.

Ok - just checked, the 3.79 YBS rate requires at least a 40% deposit.