What mortgage would you pick?

Redbedhead

We were debating this at work this week and I wondered what others thought. If you had to get a new mortgage now and the deal was for at least 2 years - what would you be looking for?

JoeK_3

A 2-year capped rate.

JoeK

Redbedhead

JoeK wrote: »

A 2-year capped rate.

JoeK

Aren't those generally a bit more expensive than a standard tracker?

JoeK_3

A capped rate caps the maximum that you will pay in the future whilst allowing interest rates to come down if the lenders standard variable rate falls below the cap.

That way you restrict any further upward movement but enjoy future interest reductions.

Base rate trackers track the base rate with no ceiling up or down.

JoeK

Redbedhead

JoeK wrote: »

A capped rate caps the maximum that you will pay in the future whilst allowing interest rates to come down if the lenders standard variable rate falls below the cap.

That way you restrict any further upward movement but enjoy future interest reductions.

Base rate trackers track the base rate with no ceiling up or down.

JoeK

I thought generally though you get a slightly worse rate, i.e. you can get a tracker at 0.5% under base while a capped will be 0.1% under base but guaranteed not to go over x%? Is that true? Otherwise I am struggling to see why people get trackers and not capped all the time.

kingkano

To be honest the capped rates I saw were ok compared to fixes, but they wouldnt go down unless the lenders SVR dropped below the rate you took it on. eg you take a 5.79 capped rate, pay 5.79 now, their svr is 7.25... how likely is it ever to drop below 5.79?? it would take a 1.5% drop in BOE rate for this to happen. to me it seems unlikely.

Id rather take a 5.49 fixed rate personally. This is all assuming what you can get. Id compare everything carefully and weigh the options. I personally would go for a longer term fixed rate if your asking for opinions

JoeK_3

Redbedhead wrote: »

I thought generally though you get a slightly worse rate, i.e. you can get a tracker at 0.5% under base while a capped will be 0.1% under base but guaranteed not to go over x%? Is that true? Otherwise I am struggling to see why people get trackers and not capped all the time.

People go for the cheapest now and suffer the consequences but there could be a few shocks on interest rates in the future and you did ask my opinion.

JoeK

Redbedhead

JoeK wrote: »

People go for the cheapest now and suffer the consequences but there could be a few shocks on interest rates in the future and you did ask my opinion.

JoeK

No, thanks for your opinion. I just wanted to make sure I understood it and the reasons for it.