fixed rate or tracker in this climate

makkan00

Hi
I bought a property two years ago.
My mortgage is due for renewal in Feb 2013. My current lender (Natwest) has sent me a letter with the instructions to check their current deals online with £150 cashback offer if I renew it online.

My remaining balance: 91,918.11
Term: 23 years 6 months
Repayment type: Capital and interest

I have logged into their website and I am being offered following deals;

1- 2 years fixed mortgage on 3.35% rate with £995 fee
2- 2 years fixed mortgage on 3.59% rate with no fee
3- 5 years fixed mortgage on 4.09% rate with no fee
4- 2 years tracker mortgage on 3.59% rate with no fee

I have bought this property on home buy direct scheme (15% by developer and 15% by government). I was told that only limited lenders can offer me mortgages.

Considering that and considering offers above, which one is better for me?

Also would I benefit by going to mortgage advisor? Can I get deals better than the deals mentioned above considering that property is home buy direct property?

sebtomato

It depends if you can afford to pay more per month if the rates are increasing or not. If your budget is very tight and you need certainty, then go for a fixed rate.

Given the news in the last few weeks about the state of British economy, I don't see the interest rates raising much in the next 2-3 years, so you could save quite a lot of money by going on variable rate (tracker), but it's a gamble. I would not go for a fixed rate for shorter term than 4-5 years.

For instance, if the base rate is 0.5% and tracker +2%, the rate paid would be 2.5%. For a fixed rate of 3.59% over two years to be interesting, the base rate would need to go up to 1% or 1.5% quite quickly to exceed 3.59% over the period, and make it worthwhile to take a fixed price mortgage. This is unlikely to happen, after having the base rate at 0.5% for a long time, and given the forecast.

getmore4less

whats your follow on rate, you don't have to change anything if that is decent

makkan00

getmore4less wrote: »

whats your follow on rate, you don't have to change anything if that is decent

Follow on rate is 4.00% for all of those.

makkan00

sebtomato wrote: »

It depends if you can afford to pay more per month if the rates are increasing or not. If your budget is very tight and you need certainty, then go for a fixed rate.

Given the news in the last few weeks about the state of British economy, I don't see the interest rates raising much in the next 2-3 years, so you could save quite a lot of money by going on variable rate (tracker), but it's a gamble. I would not go for a fixed rate for shorter term than 4-5 years.

For instance, if the base rate is 0.5% and tracker +2%, the rate paid would be 2.5%. For a fixed rate of 3.59% over two years to be interesting, the base rate would need to go up to 1% or 1.5% quite quickly to exceed 3.59% over the period, and make it worthwhile to take a fixed price mortgage. This is unlikely to happen, after having the base rate at 0.5% for a long time, and given the forecast.

Thanks.
With the tracker rate, it says 3.09% above base rate.

Giver the forecast, is it worth of going for 5 years fixed rate?

Or it is better to stick with 2 years mortgage deals?

vectistim

makkan00 wrote: »

My remaining balance: 91,918.11
Term: 23 years 6 months
Repayment type: Capital and interest

I have logged into their website and I am being offered following deals;

1- 2 years fixed mortgage on 3.35% rate with £995 fee
2- 2 years fixed mortgage on 3.59% rate with no fee
3- 5 years fixed mortgage on 4.09% rate with no fee
4- 2 years tracker mortgage on 3.59% rate with no fee

Option 1 is the same as option 2, but with a fee c.1% £995 > 1% of £99,000
You pay that fee and save 0.24% per year for 2 years.
That suggests over 2 years option 2 is cheaper than option 1.

Option 4 is initially the same as option 2, but my personal guess is that an interest rate rise in the next 2 years is more likely than a fall. If so Option 2 is cheaper than option 4. If you think the bank rate will fall then option 4 becomes the cheaper of these two.

That then leaves you with the comparison between options 2 and 3. In order to work out which of these two is cheaper you need to guess what alternative rate you would be able to secure in 2 years time and for the following 3 years.
ie: Is total cost over 5 years of the 5 year fix less than that of the 2 year fix plus 3 years of something else?

makkan00

vectistim wrote: »

ie: Is total cost over 5 years of the 5 year fix less than that of the 2 year fix plus 3 years of something else?

Thanks. Actually I am considering option 2 vs option 3 TBH. As I am not into banking / ecnonimics and I do not have a clue about the rate going down or up, and hence I asked experts here.


So option 2 or 3?

or will a broke be able to secure better deal than these?

R_P_W

No one on here can tell you whether the rates are going to go up or down and when that might or might not happen.

Don't know your circumstances i.e. whether your income is tight and mortgage increases could be a problem for you.

Unlikely that BOE will go any lower, personally I would go with the lowest rate with no fee and overpay to try and put yourself in the best position you can for when you next need to re-mortgage.

foreversummer

makkan00 wrote: »

Follow on rate is 4.00% for all of those.

But what is the follow on rate on your current mortgage?

makkan00

foreversummer wrote: »

But what is the follow on rate on your current mortgage?

Sorry, it is standard variable rate (currently 4.00%) according to the letter sent to us.

makkan00

R_P_W wrote: »

No one on here can tell you whether the rates are going to go up or down and when that might or might not happen.

Don't know your circumstances i.e. whether your income is tight and mortgage increases could be a problem for you.

Unlikely that BOE will go any lower, personally I would go with the lowest rate with no fee and overpay to try and put yourself in the best position you can for when you next need to re-mortgage.

Ok.

Another thing I would like to ask if somebody can answer.

Overpaying mortgages VS 30% equity of developer and government


Which one should I pay / overpay first to save some money on APR?

On 30% share of the property, they will charge me 5% APR after 5 years of purchasing this property (3 years from todays date), 5.23% on 6th year and 5.30% on the 7th year.

This 30 % share is approx 36K.

So considering early repayment of mortgages vs repayment of 30% share... which one should be my periority to pay early?