Tracker or Fixed Rate Mortgage

MJaye

I am currently renting and I’ve just had an offer accepted on a house and am going to see an IFA next week to organise the mortgage. I previously saw him in November to assess what approx. monthly payments would be to give me an idea of what value house I could afford. He was recommending a tracker mortgage rather than a fixed rate (for 5 yrs) because he didn’t think the BOE base rate would be increasing anytime soon and if it did it wouldn’t be a significant rise.

The value of the house is £289,950 and I’m putting down a 25% deposit. The tracker mortgage the IFA was recommending was from Barclays and it has an option where you can transfer it into a fixed rate mortgage should the base rate rise. Think he referred to it as “drop and slot”?? The tracker is £1000 cheaper to set up.

I also like the idea of a fixed rate because it means I know what I’ll be paying for the next 5 years and it’s an amount I know I can afford. If I go with the tracker I’ll be paying less initially but if the base rate rises and I choose to “drop” it into the fixed rate option the rates will have risen so I’ll be paying more than if I had just gone with the fixed rate mortgage in the first instance.

Hopefully this makes sense and I’d be interested to know your views on whether I should go with a tracker mortgage or a fixed rate.

Many thanks
MJaye

Thrugelmir

Have you considered overpaying your tracker mortgage? By the difference between the tracker and the fixed rate mortgages. That way you'll be accelerating repayment of the mortgage and wouldn't need to reconsider your options until the interest rates rise above that of the fixed rate.

Ultimately its a matter of personal choice. The only way to reduce the interest payable is to reduce the capital balance owed.

originalmiscellany

Well said Thrugelmir. If you (OP) can overpay, it's amazing how quickly you can know your mortgage down - a debt's a debt and your aim should be to clear it as soon as you can - within logic, without impacting your enjoyment of your life.