fixed or tracker??

azka

im looking to take out a mortgage of 52500. ive been offered two options by my mortgage advisor, a tracker at 4.99% until 28/ 02/07 with no arrangement fee.
or fixed at 5.19% until 28/02/07 with an arrangement fee of 399. which one is the best. any advice??

lisyloo

Personally I would go variable because I believe that interest rate have almost peaked and may well go down next year.
It depends on your outlook on interest rates and your attitude to the risk.

However I would have though that your mortgage "advisor" ought to be giving you some advice

azka

thanks for the reply. my mortgage advisor reccommended the fixed rate although i myself feel like going for the tracker. this whole mortgage business is very confusing for me as it is our very first mortgage.

lisyloo

There is no right or wrong answer to the question.

The benefit of a fixed rate is that if interest rates go up then your payments will not rise.
This can be very useful if your budget is streched and you would struggle with rises.

The downside is that if rates don't go up or even go down, then you are paying too much (relative to the tracker) and you have lost out.

It is difficult to predict rates but opinion is that they are going to peak soon and fall back next year.
They are not expected to go much higher.
I would say that this is backed up by the fact that they only want to charge you 0.2% more for the fixed rate (if they were expecting rates to rise then they would want to charge more).

I can't advise you because I'm not qualified and don't know enough about your circumstances but I would say that the fixed rate would be useful if you are financially stretched and would find interet rate rises difficult to afford.

If you are comfortable with the risk then there is nothing wrong with the tracker.
If rates do go down in future then it would be a good idea to put the money away to either help out when times get tough or reduce the mortgage.
Don't just let it "dissapear" into your normal spending as that is very easy to do.

Woby_Tide

also worth noting that the fixed rates arrangement fees of £399 is equivalent to the tracker having 3 rate rises in next few months and staying there for a year, for each 0.25% rise in BoE base rate your mortgage payment goes up £130 per year. Very rough figures but for 2 years fixed with arrangement fee you pay £5850(assuming you make no repayments so capital remains), with the tracker, even if BoE goes up 0.5% for the whole of that 2 years total pais still £5750.

All comes down to your risk strategy