Change from very low rate tracker???

MFree

Hi, I need some help with maths here...

We are currently remortgaging to move house and are fortunately able to switch our existing mortgage over to our new property while increasing the size of the borrowing. Our current deal is at BofE base rate plus 0.995% - i.e. a tracker currently at 1.4995%

We are taking out a 25 yr term and have this offer for the lifetime of the mortgage.

Our financial advisor says that as soon as rates start to increase we should look for a fixed rate. However, while I can see the sense of this in the medium term, to me in the long term we would be better off keeping the tracker as this will always be significantly lower than anything else in the market. Therefore even if we are better off with a 5 yr fixed, for the remaining 20yrs of the mortgage, we will be worse off than keeping our existing deal.

My gut feeling is to keep with our existing deal for the next 15-20 yrs and only then consider getting a fixed rate but I know little about mortgages so thought someone on here may be able to help...

Cheers
Matt

Thrugelmir

A rate of 1% above base is worth hanging on to. Going forward once evertying normalises interest rates in general will be an average of least 2% above base.

With a fixed rate mortgage there's always the sting in the tail of the default follow on rate.

kingstreet

Just to get the terminology correct, a remortgage is a new mortgage from a new lender on the same property, to replace the current one.

Your current mortgage will be repaid on the sale of your current home. You will apply to your current lender for a new mortgage for the amount you wish to borrow. If the new mortgage is granted and it's based on current criteria and your status, income, loan to value etc., you may be able to "port" the rate from the old mortgage to the new one, for the amount equal to what you pay off on the old one.

Any increased borrowing is taken on one of the lenders' new/current products, so you'll have one mortgage split into two sub-accounts, one representing the amount and rate of your current mortgage account and another for the increased borrowing and its product.

Effectively, you can take your tracker and supplement it with a fix and that gives you the opportunity to "hedge your bets" with an interest rate increase only affecting the tracker and you could look to switch that to something else as and when rates start to rise and it looks like you'd be better off with something else...

MFree

HI

Thanks Thrugelmir that is my feeling but with a financial adviser saying something different, I want to be sure. The FA is nto advising that we change mortgages now by the way jsut when rates start to change.

And thanks kingstreet
We are infact porting our mortgage across but instead of only being able to keep our existing borrowing on our existing deal, Santandare have an offer on to match our existing rate on any new borrowing so we can get teh existin rate on the full amount.

cheers

kingstreet

In which case, it's a "no-brainer" for me. Take the whole amount on your current rate and keep it under review if interest rates start to rise.

007stuart

kingstreet wrote: »

In which case, it's a "no-brainer" for me. Take the whole amount on your current rate and keep it under review if interest rates start to rise.

Agreed


It is a belter of a deal.


BTW I wonder if the IFA gets a bigger commission by recommending the switch?

kingstreet

Santander pays 0.5% proc fee on a 5yr fix, more m(0.7%) on a 10yr fix.

On a "BBR tracker" port, it would be standard 0.33%.

That's £170 or more difference on every £100k borrowed. It wouldn't make any difference to me, but there might be one or two out there motivated by this.

MFree

Yes, I agree and as i said, the IFA is not advising to switch now but to review this decision as and when mortgage rates start to look like rising. There's no way we will switch now but if rates start to go up and it looks like the BofE rate may start to rise in 2/3/4 or 5 yrs time then should we switch then??

I think that in the long run we will always be better off than the current mortgages on offer and therefore unless we have say 5 yrs left and it looks like we could beat the BofE + 0.995% with a 5yr fixed then it may be worthwhile.

Thanks
matt

MFree

By the way, our IFA has helped us to sort this out but isn't getting any fee at all from it so has done the best thing for us so far.

kingstreet

He's advising you but isn't going to arrange it?

MFree

Well, she was going to arrange our mortgage but advised us to stick with Santandare as nothing else woudl come close. She did spend about 3hrs on the phone initially with a trainee at their porting call centre and as a result of that set up another teleconference between us and a santandare mortgage consultant but has had no involvement since then - I heard her asking the trainee if she could get a commission but when he wanted to go and seek advice about what a commmission was, she gave up!