Fixed or Tracker? Predictions on Base Rate?

izools

Simple question -

Mother's remortgaging - for the first time since 1990 lol.

14 year repayment, 38% LTV.

Would a fixed rate or tracker be best? I just want people's insight to how they think the base rate is likely to change.

I.e. fix at two years 3.14% APR, or fix at five years 4.29% APR?

Or track at Base Rate + 2.25% for five years?

I haven't a clue what is likely to happen with the base rate so welcome any insight those better appraised may have.

Joe_Bloggs

What rate does your mum face if she does nothing. ?
J_B.

izools

Reposession.

Her original mortgage term is ending but she has only been paying the interest and stopped paying into the endowment when she got divorced 19 years ago.

So unless she wins the lottery she needs a remortgage plain and simple. Obviously it now has to be a repayment mortgage over a short (14 year) term due to her age so getting the interest rate right is vital - to ensure there'll be no problem meeting repayments whilst still living comfortably.

She can get about five grand from her endowment (scoff) but that's only 5% of what she needs.

poacherp

In 1988, the singer Yazz sang about this. The song - The Only Way is Up!'

The problem is, we don't know by how much rates are going up or when.

izools

So better to fix at 3.14% for two years than track base rate + 2.25% for five years then?

originalmiscellany

Five years at 4.29 is a very good rate indeed... That will give her plenty of time to work out what she can and can't afford, to hopefully save up to make some overpayments etc.

It's sad that she's been on IO for the past 19 years and has made no repayment vehicle to help clear her mortgage - even just £50 a month over the last 19 years would have returned £11.4k. Best of luck to your mum, I think the 5 year fix is historically a great deal and will provide plenty of protection for when she may need to re-mortgage in 2016.

izools

Thank you very much, a very useful post.

Unfortunately mother was on benefits raising my brother and I throughout the 90's and most of the 00's were spend repaying the credit card debt she'd racked up as a single mother, so nary a penny to spare for a repayment vehicle

Never mind, she's in a strong position now, just got to wait for Birmingham Midshires to get my dad's name off the existing mortgage account and she can apply for a new one (yes, it's taken her 17 years to forward the court order to the mortgage company... Although I checked the land registry and she is recorded as the sole proprietor so that's a saving grace at least)...

...Let the fun begin!

poacherp

izools wrote: »

So better to fix at 3.14% for two years than track base rate + 2.25% for five years then?

Comparing these 2 rates, the fixed rate does appear to be the better option - it will only take a rise of 0.5% to make the tracker rate less attractive. Although I'm no expert on interest rates, I do think we will see rates higher in the next 6-12 months.

However, I agree with the other poster about the 5 year rate as it is a good rate. Bear in mind that you will need to factor in arrangement fees and set-up costs when making a final decision. I presume the mortgage term will ensure your mother will have the mortgage repaid by retirement age?

izools

The mortgage will be repaid by her 75th birthday.

She can't afford more each month that that of a 14 year mortgage (she'll be 61 in July) so it's just a matter of get it done and tell the underwriters she won't be retiring until she's 70. Well, she can afford it, but she's a stubborn mare and won't overpay.

Besides, her retirement income will be enough to service the mortgage.

I'll show her the KFI for the 5 year fixed then, thank you for the advice. I would have gone for the 5 year fixed anyway if it were me, but mother doesn't look at the bigger picture. All she will be able to see is "I'm paying £270 now so why on earth should I start paying £504?".

...If she understood why she wouldn't be in the position she's in now. Ah well, 'mothers...