Stay of lifetime tracker or move to 5 year fixed rate?

Underscore

Base could well stay low (as long as you are tracking Base?) even if LIBOR and other measures are forced further up by the debt crisis.

My opinion and its only an opinion is that you would have a week or so to act very quickly with a good broker if there was a sudden upturn in rates for some reason. It might cost you 0.25 - 0.5% over the 5 years, but base could stay where it is for another 2-3 years and you could continue to benefit by 0.73% or more over that duration.

I'd gamble (and I use the word deliberately) and stay on the tracker but as I say, just an opinion, and it would be heavily dependent on how well I could cope at 4%, 5%, 6% etc - when does it become too expensive for you, because that's just stuff you can't afford to take a view on, its too risky.

getmore4less

nannyfish wrote: »

I'm no sure of the follow on rate. Our mortgage adviser is the one looking at the best mortgage- we've used him for 3 previous mortgages and has always been good. I just hate the gambling aspect of wether to risk sticking to the current deal (cheaper in the short term) or taking a fix now.

Follow on rate is a critical factor.

Don't mention fees what are they?

The advisor has got you on a base+2.27%, thats not that hot there have been much better, what's your LTV.

I have base+0.95 and could have changed to base+0.19

nannyfish

getmore4less wrote: »

Follow on rate is a critical factor.

Don't mention fees what are they?

The advisor has got you on a base+2.27%, thats not that hot there have been much better, what's your LTV.

I have base+0.95 and could have changed to base+0.19

Fees are £999, LTV about 40%. The tracker was taken out two years ago.

getmore4less

nannyfish wrote: »

Fees are £999, LTV about 40%. The tracker was taken out two years ago.

OK you don't give full tem but I say 20y

1. £121k @ 2.77% 20y £657pm
2. £122k @ 3.50% 20y £708pm

So paying £708pm on both after 5y you owe

1. £93,446.
2. £98,945

Up to £5,500 worse off.

get your adviser to do the numbers

System

Rikki wrote: »

Why would you change from a lifetime at 2.77% to a short term fixed at a higher interest rate?

I wouldnt class a 5 year fix as short term. If the base rate goes to 1.5% (still historically low) then the fixed is going to be a lower interest rate.

Although the 'experts' predict no base rate rises until 2014/15, they have been (frequently) wrong before. Just 6 months ago they were stating that a base rate rise was imminent. Of course did anyone predict the base rate would fall to this level when it was up at 5% plus?

If you want certainty over the next few years then go for the fix as 3.5% is never going to be classed as a bad rate. I would just be thankful you didnt fix just before the recession as I know countless of my friends did. They are paying over 6% and are still stuck for 2 more years.

If you are a gambler then stay put as the odds are probably with you. Personally I am not a gambler!

HAMISH_MCTAVISH

payvpac wrote: »

If you are a gambler then stay put as the odds are probably with you. Personally I am not a gambler!

I've never understood this mentality.

It's not gambling to quantify risk and make an informed decision based on probabilities.

The outcome of that decision may point you towards either a tracker or a fix depending on the risk analysis/tolerance for an individual. But that doesn't make it gambling, nor does it mean that either course of action is necessarily more prudent or sensible than the other.

hillcats

As others have mentioned this is all based on your own personal perception of risk.
At what % will you start to be concerned about making your full repayments ?

Compare your follow-on rate with any other offers put in front of you ( also make sure you check other offers available within your LTV range on the internet, just to be sure you are actually being offered the best possible deal for you... ) but I would only personally be looking for a better lower tracker as your current deal is indeed quite high really for a two year old tracker rate.

Interest rates will always be a hot subject, the answer is nobody really knows and you need to work out how flexible your monthly incomings and outgoings are to work out how much more you could afford to pay if you really had to each month...

Best of luck with YOUR decision

System

HAMISH_MCTAVISH wrote: »

I've never understood this mentality.

It's not gambling to quantify risk and make an informed decision based on probabilities.

The outcome of that decision may point you towards either a tracker or a fix depending on the risk analysis/tolerance for an individual. But that doesn't make it gambling, nor does it mean that either course of action is necessarily more prudent or sensible than the other.

I disagree. You cannot make an informed decision based on probabilities because you do not know the probability of the base rate rising. If there was a mapped out set probability for this over time I would totally agree with you and you could calculate your risk/benefit ratio and make a fully informed decision. However there is not and on a tracker you are therefore betting that it will not and it is therefore a gamble. Of course there is a lot more to this as on a lifetime tracker you can escape to a fixed rate. I stand by what I said and therefore if you are prepared to take a bit of a risk, the tracker is the option for you. If you prefer certainty (even if it may cost you a little in the long run), go for the fixed.

nannyfish

Thanks lots for all the input. I'm confused though. I had a tracker which ran out two years ago which was like to ones mentioned, ie around 0.5% above base rate. I even managed to overpay for about 3 years and was sitting pretty. then it expired and had to remortgage (also raise capital for house improvement) and got the new rate. Even now if I search trackers they are around 2.5% above base rates. Where are the sub 1% trackers?

HAMISH_MCTAVISH

payvpac wrote: »

I disagree. You cannot make an informed decision based on probabilities because you do not know the probability of the base rate rising.

Of course you can make an informed decision.

Base rates are not random. It's not decided on the roll of a dice.

All the data that the MPC uses to decide is publically available, the minutes of the MPC meetings are made public, the vote is made public, and the members of the MPC regularly share their opinion in speeches, media interviews and briefings.

You'd just about have to be living in a cave not to be able to determine the probable direction of base rates. There's almost nothing in economics more widely reported on.

I stand by what I said and therefore if you are prepared to take a bit of a risk, the tracker is the option for you. If you prefer certainty (even if it may cost you a little in the long run), go for the fixed.

Fixed rate mortgages are sold with the hedge against risk priced in, plus a bit of extra profit for the banks. By definition, the banks believe that they will come out ahead over any term of a fix at the price they sold it to you.

The only certainty in repeatedly taking fixed rate mortgages for the full 25 year term of a mortgage, is that you will end up paying vastly more than someone who takes trackers for the term. In return for paying more, you protect yourself against occasional rate spikes. Can't see that it makes sense for most.