Fixed or Tracker

EllieK_2

Hi everyone, I'm sure this has been brought up before so sorry to bore you.

My situation is that I am a first time buyer, I have a fairly good deposit (25%) and am currently looking at houses.
I have met with a couple of mortgage advisors and decided to go with a fixed rate mortgage, as then I will always know what I'm paying.
But a friend said to me yesterday that he is on a tracker and pays about £100 a month less than I would for the same amounts!

I know all the risks, I have looked into it quite a lot, but my question is this, does anyone really have any idea what the interest rates are going to do in the next few years? I have one person telling me they won't go up much at all in the next few years, certainly not the 2% difference between the fixed and tracker I am looking at (2.49% v. 4.19%). But then my dad is saying 'in 1989 they went up 16.5% in a day' trying to scare me! I obviously wouldn't be able to afford my mortgage payments then.

What should I do?! I would love to start off this mortgage business saving money, and then hopefully when the interest rates start climbing I may have had a wage increase and be more comfortable, and hopefully it would still be less than the fixed... But is it worth the risk?

Thanks everyone, any help would be very gratefully received!

HappyMJ

That's a pretty good tracker rate does it have a revert to rate after the deal has finished? How long is the fixed rate for. I'd go for a 5 year fix or more then your bets are pretty much hedged.

It's up to you whether it's worth the risk. Rates will rise but when nobody knows when.

noodle

Look at the options you have, and your own priorities and requirements... don't worry that someone else might be getting a better deal.

If you're happy with the cost of your fixed deal, are not concerned that being tied in to a product will be detrimental to you (broadly, are you happy that you'll want to own a house for the next x years), and don't want to bear any risk of rates rising.. then fix.

If rates do rise to a point where the variable cost ends up being higher than your fixed cost would be... then you win.

If rates don't rise, and at the end of the deal you'd have been much better off with the variable rate... well you've not lost anything, because you've paid exactly what you intended to pay all along.

EllieK_2

The 2.49% tracker is 2yrs at 1.99% above the base rate, with a £945 fee.
It says it currently reverts to 3.5%.

The 4.19% fixed is 3yrs, reverting to the same at the end of the term.


As of now my payments (roughly as I haven't found a house yet) would be £358 on the tracker and £440 on the fixed. I could really do with that £80 a month extra, but don't want to be paying loads more later on.

The 5yr fixed is at 4.99% so quite a bit higher... £483 which is a lot more than my rent now (only £300)

Peelerfart

Ellie,what about fees on the fixed, are there any?

£945 is a lot to pay for a two year tracker as in two years that money will be gone and may need to be paid again.

EllieK_2

Currently the fixed rate is fee free! It was only about £200 before that.
The payment amounts I have shown for the tracker include that fee built in, which puts it up about £3 a month compared to if I paid it outright..

Peelerfart

So it seems like they have taken the £945 and spread it over the length of the loan,which,to me makes the 5 year fix even more desirable.

I'm a bit of a fan of trackers,so much so that I've got one,but in this instance I would deff fix and for the longest time.
3 yr fix at £440 pm or 5 yr fix at £483 pm is really the only choice you have IMHO.

Thrugelmir

EllieK wrote: »

As of now my payments (roughly as I haven't found a house yet) would be £358 on the tracker and £440 on the fixed. I could really do with that £80 a month extra, but don't want to be paying loads more later on.

Can you afford the repayments if interest rates where to reach 6% or even 7%.

Ultimately this is where mortgage rates will end up in the medium term. Don't be fooled by the current low rates, They are only temporary.

dimbo61

We know little about you or your long term plans , job, income, area you live, lifestyle so can only guess!
I am a fan of fixes even when paying 4.74% compared to what some people paid on tracker deals!
Some people got very lucky when rates dropped to 0.5% BOE base rate but we had a banking crisis.
Now the normal BOE rate is 5/6% so think long term do you want to be looking for a new deal/remortgage in 2/3 years when rates will have gone UP!
If you take the 5 year deal and overpay your LTV and level of debt will be much better and the best deals will be available to you

EllieK_2

I live in the Midlands, I have had my job for 8 months now (it's a fantastic position but the wages aren't great, hopefully I should be due an increase come August time ish) I definitely see a good future with this company.

My dad is now suggesting get the tracker for two years and overpay the £80pcm, is that a valid suggestion?

My interest in the tracker was that as I get paid a low wage now, it would give me some leeway, and as the interest rates increase so should my wages, although hopefully the interest rates won't increase too dramatically!

Peelerfart

EllieK wrote: »

My dad is now suggesting get the tracker for two years and overpay the £80pcm, is that a valid suggestion?

It's valid if A) interest rates dont go up eroding the £80 and you do it!

Several hundred years ago when I was young it would have been way too tempting for me to miss a month or 2 or 3 to pay for a holiday or driving lessons or whatever.

but I was weak.......