Five year fix or stick with tracker

fewcloudy

TBH, I'd wait for MUCH more signs of recovery before even thinking of changing. Got family/friends in the building trade; deadly quiet. Even more friends in the public sector; 3+years of pay freeze, feeling the pinch, house prices/sales dead-in-the-water (Edinburgh).

I'm on a tracker with A&L, Jan 2008, 23 years, 0.5% above BOE base rate for 2 years. The interest rate was 5.5% and repayments were £1050. Obviously since then it's been down all the way; at one stage the repayments were £560. After the 2 year period it became 0.99% above BOE rate for the lifetime of the mortgage. So for a good while now it's been 1.49% and about £650 but we overpay and there is no limit on overpayments. Interest rates would have to rise to 4.5% to put me back in the position I was in when I agreed to the mortgage 5 1/2 years ago.

When they do rise I reckon they will creep up slowly over many years and if/when they hit 2.5% that's when I'll look to fix for some years. That's the plan anyway!

But I don't see interest rates sitting at anywhere near 'normal' (5%+) for many years yet.

dumpallhere

2.79% vs 2.99% .. 0.2% difference.

A single step increase of quarter percentage point in BOE rate will make the advantage a disadvantage.

If this change happens in the next 5 years, you'll think back and regret not opting for a fix rate at the right time. Any further increases will make you regret even more. On the other hand, if the BOE rate does not change for 5 years, you'll be 0.2% better off all the time, if not more. But will the BOE rate remain the same for 5 years. I think not!!

The question is when will BOE change its rate? People can only guess .... and therefore offer their opinions nothing more. Whose opinion will come true ... god knows!

Fixed rates have nothing to do with BOE rate, so any increase in fixed rate is not dependent on BOE's plans.

Since I (personally) do not believe that the BOE rate is going to remain the same for next 5 years, I would choose the best 5 year fixed deal that allows at least 10% of balance as overpayments every year and repay as much as I possibly can in those 5 years. Will that be the best solution to my dilemma? .... I don't know for sure but I think so. There is no right / wrong answer when predictions come into play and so, I might either be crying over this decision in 5 years time or congratulating myself for making the only sane decision of my life! Who knows?

And likewise for you, you need to take a decision that you think is the best solution for you. All the best.

michaels

fewcloudy wrote: »

TBH, I'd wait for MUCH more signs of recovery before even thinking of changing. Got family/friends in the building trade; deadly quiet. Even more friends in the public sector; 3+years of pay freeze, feeling the pinch, house prices/sales dead-in-the-water (Edinburgh).

I'm on a tracker with A&L, Jan 2008, 23 years, 0.5% above BOE base rate for 2 years. The interest rate was 5.5% and repayments were £1050. Obviously since then it's been down all the way; at one stage the repayments were £560. After the 2 year period it became 0.99% above BOE rate for the lifetime of the mortgage. So for a good while now it's been 1.49% and about £650 but we overpay and there is no limit on overpayments. Interest rates would have to rise to 4.5% to put me back in the position I was in when I agreed to the mortgage 5 1/2 years ago.

When they do rise I reckon they will creep up slowly over many years and if/when they hit 2.5% that's when I'll look to fix for some years. That's the plan anyway!

But I don't see interest rates sitting at anywhere near 'normal' (5%+) for many years yet.

So you have the option to borrow hang on to money borrowed at 1.49% (and obviously invest it elsewhere for a no risk profit) but instead you are overpaying?!

MarkBargain

michaels wrote: »

So you have the option to borrow hang on to money borrowed at 1.49% (and obviously invest it elsewhere for a no risk profit) but instead you are overpaying?!

My thoughts exactly! Why pay off a debt at 1.49% when you can invest the money at much higher rates?

I currently get 6% with a Nationwide regular saver, 5% Nationwide Flexdirect, 3% Santander 123, 2.5% Nationwide ISA. All of those are instant access, but they have various limits in terms of how much can be invested.

horngkai

I am tracking 0.89% BoE and have all my extra money in savings, earning more interest than I would've overpaying

fewcloudy

Hi

Thank you for pointing that out to me, and I agree with you. It was good luck and a good broker that has caused my current situation, not financial astuteness, and I just thank my lucky stars I'm on the deal that I am.

Two reasons I'm doing what I am doing. First because it's encouraging to shorten the length of my mortgage by years, a feel-good factor I guess. Second is that I would be able to spend any savings if I just left money in the bank. Not saying I would, but it would be tempting and possible. Doing it my way I don't have it to spend and that works for me. Having said that, it does say on my statements each month that I have X amount of credit so it's available to me (savings?) and not taxed I guess. And the same statement shows how much debt I have and the amount of interest I pay on that debt each month and I will be so glad to see it gone sooner.

Sorry for being off-topic but just wanted to answer the posts directed to me.

Johnnybegood

Thanks for all the advice, I've decided that i'm gonna go for the fixed deal, I still have £175,810 left on the mortgage and I can't gamble on the base rate remaining at 0.5%. The other reason for going for the fixed deal is that I'm currently in the process of paying off £24,000 of unsecured debt which will be gone in 3.5 years Whilst this is quite manageable there isn't much wiggle room if my tracker was to rise in the next 4 years so the security of the fixed payments makes sense.

rd07

I've been looking at the same thing this week.

When I took the mortgage out in 2009, as a FTB, the rates were quite limited and we were on a 5.9% fix. The mortgage allowed 10% overpayments so have paid as much as possible to get the LTV down before we remortgage this year.

Just applied for the First Direct 5 year fix at 2.69 with a £499 booking fee. Lots of similar products elsewhere for lower LTV, but bonus here is that overpayments are unlimited.

As we are used to paying higher mortgage payments, intend to keep them at the level they were when we took the mortgage out, so we will be overpaying £225 a month and I intend to top this up with at least £5k we save each year. This way, whatever is happening to interest rates in 5 years, at least the impact won't be as severe!

Johnnybegood

sounds like a good plan to me Rd07, I've also booked the rate to start in 6 months time, so will remain on my tracker until Jan 2014.

Gizmo247

Johnnybegood wrote: »

sounds like a good plan to me Rd07, I've also booked the rate to start in 6 months time, so will remain on my tracker until Jan 2014.

It looks like you debt-to-income ratio could be quite high and taking action now to either reduce it or prevent it climbing further is a wise move.:T