Fixed or Lifetime Tracker?

getmore4less

I will probably change mortgage after 2-5 years but I would like to future proof the mortgage as much as reasonably possible.

You can't future proof a rate but you can future proof the realtive rate.
By that I mean how competative your future rate is likely to be.

If you get it right now you will never have to remortgage unless there is a tracker with lower margins or your curcumstances change so you need a fix.
( after I took my + 0.95% over the next couple of years the Barclays margin dropped to 0.17%, we could have changed for a fee but we were 100% offset by then with savings and stooze money)

The low cost trackers do this as you can see by the follow on rate the other deals have are much higher so you protect the long term even of there is a risk of some short term loss.

So over a long term the cheap tracker has a very good chance of giving you the cheapest overall mortgage, chasing the rates every 2,3,4,5 years just adds fees and each change only protect you for a short period.

The key though is the overpayments that the cheaper option allows, you have to make them to get the long term benifits.

So the best way to protect your future mortgage payment is to have lower borrowings. Interest rates do matter but relatively you have little control over them except for short periods unless you go for very long term fixes.

As you have said you don't NEED to fix, with £25k savings how much extra can you put away each month intothat pot, an offset might be the right solution for you and the YBS fix offset mught be OK if you can get a big pot together in 5 years the higher follow onrate won't matter as much.

Personaly I would do the numbers and see where the FD offset sits I think it will still win.

If the savings are in cash ISAs then the Barclays solution may be worth a look but their costs are a bit high so you realy need the ISA protection to make that a good choice.

V6Matt

getmore4less wrote: »

FD margin for offsets is a tiny 0.2%.

I spotted that on the lifetime tracker, which looks to be potentially great value.

However can't see that they do this for 5 year fixed

getmore4less

V6Matt wrote: »

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?

Have a go,
http://www.whatsthecost.com/mortgage.aspx

I use a few of these (open a new one in a tab)
then just stick the number and see what the results are.
So for the 2 year fix that is easy.
For the tracker over 2 years that is easy

So try those 2 first and see what you get.

Now if you do them with repayment you will see the monthly payments are different so pick the highest round up tothe nearest £, select Interest only and stick that number in and see the difference(use the details tab for monthly breakdown)

You now have the LIke for like over 2 years if rates don't change.

To do the what if open another tab and take the tracker amount owing after 1 year, use this as the staring value in the new tab.

You will then see that this new caclulation after year(2 2 in total) should be the same as the initial tracker tab.

You can then play with the numbers, I itterate the rate up till the amount owing after a year is the same as the fix was.

There you have it a comparison for one senario.

You can do this with as many incriments as you like feeding the numbers down the chain.

Have a think and ask questions.
It probably would be easier with a spreadsheet but this works fine and does not take long once you get the hang of it.

V6Matt

getmore4less wrote: »

You can't future proof a rate but you can future proof the realtive rate.
By that I mean how competative your future rate is likely to be.

As you have said you don't NEED to fix, with £25k savings how much extra can you put away each month intothat pot, an offset might be the right solution for you and the YBS fix offset mught be OK if you can get a big pot together in 5 years the higher follow onrate won't matter as much.

Personaly I would do the numbers and see where the FD offset sits I think it will still win.

If the savings are in cash ISAs then the Barclays solution may be worth a look but their costs are a bit high so you realy need the ISA protection to make that a good choice.

This was absolutely my approach, as I wanted to make sure the SVR/follow on rate is competitive.

I can probably tuck away 300-400 extra a month into overpayments.

Do you mean the FD Offset lifetime tracker, rather than say a 5 year fixed offset

JimmyTheWig

V6Matt wrote: »

I have narrowed this down to the 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

There are two reasons to go for a fixed rate.
1. It means that whatever happens to rates during the fix you will be able to pay your mortgage and keep your home.
2. You have a better idea than the bank about what rates are going to do and can see that the fixed rate will be cheaper.

Now, number 2 is pretty unlikely. I know banks don't always get it right, and sometimes they are well wide of the mark, but they are the professionals here and are likely to be able to call it better than you.

So, back to point 1. Now, it's all very well fixing now to ensure that you can pay your mortgage for the next 2 years, but what happens then? You won't have made much of a dent in the mortgage in that time and if rates are high then you can only choose to fix at a high rate or go onto a high variable rate.
So with a two year fix you're not gaining much peace of mind at all. So what's the point in paying over the odds for it?

Of the two I'd go for the tracker. But I'd ask myself this. Could I afford the mortgage if rates went up by, say, 3% within the next few years? If the answer is no then go for a 5 year tracker and get that peace of mind, even if it means paying extra for it.

V6Matt

JimmyTheWig wrote: »

There are two reasons to go for a fixed rate.
1. It means that whatever happens to rates during the fix you will be able to pay your mortgage and keep your home.
2. You have a better idea than the bank about what rates are going to do and can see that the fixed rate will be cheaper.

Now, number 2 is pretty unlikely. I know banks don't always get it right, and sometimes they are well wide of the mark, but they are the professionals here and are likely to be able to call it better than you.

So, back to point 1. Now, it's all very well fixing now to ensure that you can pay your mortgage for the next 2 years, but what happens then? You won't have made much of a dent in the mortgage in that time and if rates are high then you can only choose to fix at a high rate or go onto a high variable rate.
So with a two year fix you're not gaining much peace of mind at all. So what's the point in paying over the odds for it?

Of the two I'd go for the tracker. But I'd ask myself this. Could I afford the mortgage if rates went up by, say, 3% within the next few years? If the answer is no then go for a 5 year tracker and get that peace of mind, even if it means paying extra for it.

Can quite easily cover a 3% increase.

It is more a case of trying to protect myself as much as I can, i.e. if BOE rate is likely to go past certain levels which means a 5 year fixed would have been better, then I need to consider that seriously.

Also taking into account ongoing rates after any special period.

I am not risk averse but I don't want to ever think back and say "well if I only I had checked this or that", as rates could shoot up or they could bumble along - no-one knows.

I think the suggestion is that massive rate increases within the 5 year period is unlikely and with a lifetracker at this rate, I would be reasonably well covered.

My concern still remains as to whether 1.89 is a fair rate, especially as some people mention historic trackers of 0.95 + base. Therefore am I increasing my risk and potentially not getting that great a lifetime tracker rate.

I am also mulling over the offset lifetime tracker for 0.2% more, as it looks like it would save me money given my savings, but it appears to be interest only?

Presumably the way this works, is that they automatically pay off the interest from my linked accounts, then it up to me to manage my money and ensure I transfer a suitable sum over to my savings/current account, so that I can pay off the mortgage whenever I want....in the meantime as I save more, the amount I am paying interest on declines.

JimmyTheWig

V6Matt wrote: »

if BOE rate is likely to go past certain levels which means a 5 year fixed would have been better, then I need to consider that seriously.

Like I said, you're trying to beat the banks at their own game. They've got their idea of what rates are going to do over the next however many years and they set their fixes accordingly.
You might get lucky and out-guess them, but with a fix you generally pay a price for the certainty so if you don't need that certainty you'd be paying for something that you don't need.


Does anyone have access to historical fixed rate data? Would be interesting to pick a big player (e.g. Abbey) and compare strategies (e.g. always going for a discount rate, always going for a 2 year fixed rate, etc) starting from 25 years ago.


Though the other option with a fixed rate is that you can reduce the term of your mortgage, thus increasing your monthly repayments. Increasing your monthly repayments might move you into a situation where you couldn't afford an increase in rates and so the fix becomes desirable again. By paying the loan off sooner you will save significant sums in interest - possibly more than you would have saved by going down the non-fixed interest route.

If you haven't looked at reducing the term, do so now. It doesn't cost _that_ much extra each month to repay the mortgage over 18 years compared to 25 years, but the saving on interest is huge.
There's nothing to say a mortgage has to last 25 years.

V6Matt

JimmyTheWig wrote: »

Like I said, you're trying to beat the banks at their own game. They've got their idea of what rates are going to do over the next however many years and they set their fixes accordingly.
You might get lucky and out-guess them, but with a fix you generally pay a price for the certainty so if you don't need that certainty you'd be paying for something that you don't need.


Does anyone have access to historical fixed rate data? Would be interesting to pick a big player (e.g. Abbey) and compare strategies (e.g. always going for a discount rate, always going for a 2 year fixed rate, etc) starting from 25 years ago.


Though the other option with a fixed rate is that you can reduce the term of your mortgage, thus increasing your monthly repayments. Increasing your monthly repayments might move you into a situation where you couldn't afford an increase in rates and so the fix becomes desirable again. By paying the loan off sooner you will save significant sums in interest - possibly more than you would have saved by going down the non-fixed interest route.

If you haven't looked at reducing the term, do so now. It doesn't cost _that_ much extra each month to repay the mortgage over 18 years compared to 25 years, but the saving on interest is huge.
There's nothing to say a mortgage has to last 25 years.

I do keep falling into that trap and probably haven't properly considered how a fixed rate has been set.

I must admit, even though I have set the 25 years I would probably be looking to make overpayments and bring in the life of the mortgage. This relies on the option for overpayments which I have to say FD looks very strong on.

JimmyTheWig

V6Matt wrote: »

This relies on the option for overpayments which I have to say FD looks very strong on.

Really? I've always thought HSBC were a bit rubbish on overpayments (and assumed FD to be the same).
Obviously with an offset (sounds to me like you are a prime candidate for one) then overpayments are clearly all part of the deal.

dimbo61

Rates have never been this low! and the only way from 0.5% BOE base rate is up so I still think a 5 year offset fixed even with a BIG fee of £995 ( thats £200 a year) is the way to go and even better if you can top up the offset account be £300/400 a month.
You are building up an emergency fund just in case and saving 3.79/4.09% tax free with every penny in the offset account.
I do not save interest by offseting I keep the same payment every month no matter how much is in the offset account what I am doing is knocking years off the mortgage term and saving thousands in interest long term