Tracker mortgage, is it right to switch to?

chalky2011

Hi, I'm currently coming to the end of a 5 year fixed rate deal(5.09) and don't know whether to take another fixed rate deal or go on to a tracker mortgage for a while. Seen a tracker with overall cost of 2.4 just now with HSBC and have seen various fixed rates also if I go for fixed rate should I tie in for 3 or 5 years any advice would be greatly appreciated. Don't want to tie in again to early. Mortgage has 18 years to run approx £65,000 to pay LTV about 55%. Thanks.

Forgot to say HSBC tracker has no fee or early repayment charge, this is what attracted me!

holly_hobby

BOE base and LIBOR rates (which is the rate at which banks borrow money) are unlikely to reduce any further - they can only go up.

Quite when that will happen is anyones guess - but my own thoughts are certainly not before the end of the yr due to the economic factors govening the recovery. (but that is only my assumption - no one can say for certain how or when they will begin moving up).

Basic advice is if you want certainty of payment, or are tight on budget, select a fixed which will ensure that you are able to budget and plan for a certain no of yrs.

If you have more flexibility with your income, and can tolerate a decent hike in BOE base (meaning you'll pretty much survive given normal increases) then you could take a punt on a tracker. But beware that BOE base will only rise - so the monthly interest payment quoted now can only increase. (as I say quite when is anyone's guess)

Hope this helps

Holly

chalky2011

Yes Holly this is my quandry, when the rates will go up,we all know they will, I'm thinking that because of the slower than expected recovery that the BOE don't want to put pressure on the economy by causing people to draw their belts in further because interest rates have risen. As you know inflation was rising anyway because of fuel and consummables. I'm probably trying to wring the last possible piece of benefit out of the current interest rates (lol)so I guess I'm just trying to work out if rates will remain as they are for the next 12 - 18 month as I have read in various places.

hairbrain05

thank you for posting - we are also looking at a 2yr tracker and are wrangling over this vs fixed. so am also interested any any other thoughts...

like you we are hoping to wring any possible worth out of the current rates!

Gorgeous_George

If you take the tracker and base rates rise (and I don not know that they will) you will find fixed rates rise as well. Fixed rates might not look so attractive when you decide you are ready to fix.

I wouldn't fix for three years. I would fix for ten if I was offered a rate to tempt me away from my BofE +0.74% offset tracker (3% would do it). Even five year fixes might not tempt me.

GG

dimbo61

HSBC are offering the best tracker on the market at the moment but they have had so much interest that they can cherry pick the very best customers !!!
With lenders like YBS offering 5 year fixes at 3.99% fee £999 you have long term security
If you get a cheaper tracker then overpay like you are paying 6/7%

SAHD_Jim

The decision of when and how to fix is a tricky one at the moment. Only a few months ago many "experts" were saying rates would rise some time before the middle of the year. Now some feel it won't be until at least early next year. If the Euro debt crisis leads to larger economic problems, who knows we may not see rates rise until at least 2013! Added to that it would seem that the BoE has replaced a hawk with a dove, shifting the balance further in favour of the status quo at present.

Therefore, based on the groundswell of current opinion, I'd have said that chances are that a short term fix would be a bad idea, since there's a good chance you'll end up paying more over the period and, more importantly, you're more likely to be coming out of the deal at a time when rates are getting quite a bit higher and finding a decent new deal might be tricky. Mark my words, if you start seeing a lot of competitive 2 and 3 year deals around, then the lenders feel the same way.

So, if you need certainty of monthly payment, I'd have said a 5 year fix option (or longer) would be the one to go for, and I've seen some deals out there not a million miles more expensive than the 3 year ones.

However, what I have decided to do is to have the tracker option and to overpay as much as I can every month while rates remain low. I have saved arrangement fees and higher interest payments that all get ploughed back in every month along with whatever else I can muster.

Obviously, if rates rise dramatically very soon I will be left open, but I am willing and able to take the risk. If things go to plan, I will have paid my mortgage off in 6 years (there are 21 left officially). If rates hit 15% by the end of next year then it's squeaky bum time...!

The key question you need to consider is how important is 100% certainty of monthly payment to you. If it is very important then fix, and don't wait too long to do it, since that is a risk in itself. If, however, there is sufficient slack in your budget then you may find the tracker option better, but don't waste the savings - overpay and then overpay some more - make hay while the sun shines...

hillcats

SAHD_Jim wrote: »

... but I am willing and able to take the risk. If things go to plan, I will have paid my mortgage off in 6 years...

Excellent, same applies to us. (maybe 7 yrs?)

SAHD_Jim wrote: »

The key question you need to consider is how important is 100% certainty of monthly payment to you. If it is very important then fix, and don't wait too long to do it, since that is a risk in itself. If, however, there is sufficient slack in your budget then you may find the tracker option better, but don't waste the savings - overpay and then overpay some more - make hay while the sun shines...

Some good advice there SAHD Jim, - Interest rates are indeed only likely to go one way, but when and by how much and how quickly is anyone's guess. The bottom line to this question is it depends on personal perception of risk based on personal monthly expenditure / excess funds available to ensure the roof stays over your head.

trulysaintly

The 'best' rate for you, might not be the best for another poster. Your individual circumstances dictate the best rate for you - not best buy tables or price comparison sites. After all, they are mostly paid for advertising - so you're not getting an overview of the whole market.

Whether to fix or track again comes down to your own circumstances - don't be misled by opinions of others.

The lenders are fighting for business now and I'm getting rate reductions every day from the lenders - some are 50% below their own lending targets for 2011, and are going to be fighting for your business NOW - not in a year when rates have started to rise.

Wait until then and you'll miss the boat if you're looking to fix..because as soon as people panic, the rates will go even higher and disappear even quicker.

Why do I know this? I worked for high street lenders for a decade before going independent - it's how it works in a rising interest rate environment.

With some 5yr Fixed Rates available below 4% - you'd be MAD to turn that down in a hope that they'll get more cheaper. Think beyond the next 12 months.

One other thing, if you haven't spoken to a broker or your lender in the last 2 years - do so as a matter of urgency. Know your options - criteria has changed since the downturn and you could be in for a nasty surprise if you assume that remortgaging will be as easy as in the past.