What would you do? Fixed or variable?

Latsie

My mortgage deal is ending next month and my provider is offering me these options;

1) Tracker variable rate at 1.99% above BR = 2.49% (pay £769 per mth if BR stays at 0.5%. If BR increased to 2.5% I'd pay £938 per mth)
2) 2 yr fix at 2.83% (pay £796 per mth) - no arrangement fee
3) 5 yr fix at 3.99% (pay £894 per mth) - no arrangement fee

I know nobody has a crystal ball, but just wandered if anyone had any thoughts on which option is best.

Thank you and Merry Christmas ;-)

Farmerbob

Merry Xmas to you! Who is the lender? Also is there a set term for the tracker or is it a lifetime tracker and does it allow you to switch to fixed with no costs or early repayment charge if the rates start climbing?

Latsie

The lender is Woolwich (Barclays). It is a lifetime tracker

Farmerbob

Do I take it that the SVR rate that you are going on to is higher than the rates above forgot to ask?

Thrugelmir

Stick with Lifetime tracker.

Switching to a fixed rate product is only a temporary reprieve. Longer term interest rates will rise to normal levels.

Wh05apk

What's your LTV, there may be better rates out there?

If you are concerned about rising rates and see yourself remaining where you are for some time, a long term fix could be worth considering, at under 4% historically it is still cheap, and I suspect could look so in 2-3 years time?

Latsie

I think I will be looking to move house in about 3-5 years. My LTV is currently about 75%-80%

pinkteapot

We've got a lifetime tracker at the same rate and are allowed to make unlimited overpayments. We're making signficant overpayments while rates are so low, well in excess of the 10% we'd be limited to on a fixed rate. This is a great option if you can do it.

What does your monthly budget look like? If the increased payments on the tracker when interest rates rise would be a problem or make money tight, you might prefer the security of a fixed rate. If not, my vote would be tracker and overpay (or save if you can get a higher rate than 2.49% on savings) ready for when you want to move.

DannyboyMidlands

Lifetime tracker every time.

getmore4less

What rate is your current deal going to?

Barclays had some great tracker followons, shame to throw one of those away.

Latsie

My current thinking is to go for the 5 yr fix. Yes, for the first couple of years I would obviously be better off with the lifetime tracker, but interest rates can only go one way so I reckon for years 3,4,5 I would be better off financially and with the security of the 5 yr fix. 3.99% is significantly better than the 5.49% product I have just come of off too.
I think the 2 yr fix is probably the worse option for me.