To fix or remain on a Tracker......

peterg1965

I aim to have paid off my rather large mortgage in 7 years time when I am 55. Currently on a BoE Tracker 1.03% above base rate, but it has a floor at 2%, so am paying 3.03% and this is a Nationwide Lifetime tracker taken out in 2008.

I have the option to 'switch and fix' with Nationwide at minimal cost to me, no valuation required, no paperwork, quick and simple and done online. The 5 year fixed rate I have my eye on is 2.89% 5 year fix with a £900 product fee. This will save me £61 a month - my mortgage is interest only.

My only hesitation is, what if we move and downsize in the fix period and how much I will be exposed to the ongoing SVR for two years from when the fix finishes to when I am in a position to pay down the mortgage.

So, should I fix or stay on my tracker? With the tracker BoE base rate would have to go up more than 1.5% before it has any impact on my mortgage payment.

black_taxi_2

interest only?

how are you paying off mortgage end of term?

getmore4less

Add the 900 to the amount owing and use the saving to overpay.

the first 14 months will be recovering the fee.

What does it look like in 5 years time? the overpayments will reduce the amount owning quite a bit or bee a savings pot to cover the 2 years on SVR

What is the SVR how much more that the tracker floor?

Why not downsize now and reduce the mortgage?

getmore4less

black_taxi wrote: »

interest only?

how are you paying off mortgage end of term?

My guess is a combination of downsize and pension lump sum.

Imma_Number

I would be more worried about the 5% Early Repayment Charge for 5 yrs on the fixed rate.

Also will the 5yr fixed rate also be Interest Only or will it move to repayment?

peterg1965

Thank you for your responses.

black_taxi wrote: »

interest only?

how are you paying off mortgage end of term?

Yes interest only. A calculated move made 6 years ago with the assistance/advice of an IFA. I still remain content with my decision but the changing pension legislation and landscape over the last 3 years has moved my goalposts and changed my strategy.

Mortgage being paid off by the combination of a final salary pension lump sum, Lump sum from a SIPP and ISA savings. I would say that I am on track but it's a bumpy road. If I don't make it at 55 I will have roughly £50k income from pensions, so having a small mortgage isn't catostrophic . Currently saving between £1000-£1700 a month into a fund account (ISA topped up this year). I was saving c£1250 into a SIPP but there was a danger of me gong over the reduced Lifetime Allowance.

getmore4less wrote: »

Add the 900 to the amount owing and use the saving to overpay.

the first 14 months will be recovering the fee.

What does it look like in 5 years time? the overpayments will reduce the amount owning quite a bit or bee a savings pot to cover the 2 years on SVR

What is the SVR how much more that the tracker floor?

Why not downsize now and reduce the mortgage?

I realise that the fee reduces the saving but it is the certainty off fixing that really attracts. The unattractive bit is not knowing what will happen between years 5-7.

The Nationwide SVR is 3.99% currently and the tracker floor is 2%.

getmore4less wrote: »

My guess is a combination of downsize and pension lump sum.

Nearly correct! Downsizing is not currently on the cards, but if if we did the 5% early redemption charge on the fixed rate applies only to the different between current and new mortgage.

Imma_Number wrote: »

I would be more worried about the 5% Early Repayment Charge for 5 yrs on the fixed rate.

Also will the 5yr fixed rate also be Interest Only or will it move to repayment?

The move to the new rate will be IO. Nationwide's policy is not to offer IO to new customers only.

Imma_Number

I think this is serious crystal ball territory.
Several years ago I took out a 5yr fixed and interest rates climbed and climbed until about halfway through the term at which point they plummeted to their current levels. Initially I was happy, 2.5yrs later I couldn't wait to come off. Overall it worked out about evens.

My point is that we've no idea of what's going to happen in 5-7 years. I appreciate that with a sizable IO mortgage your exposure to interest rate rises is quite high and forward planning is prudent.

Have you thought about fixing in 2yrs time?
ie gambling on interest rates not rising for the short term and maybe fixing on a rate that might not be too much higher than todays fixed rates?

peterg1965

Imma_Number wrote: »

Have you thought about fixing in 2yrs time?
ie gambling on interest rates not rising for the short term and maybe fixing on a rate that might not be too much higher than todays fixed rates?

The deal I am on currently is pretty good i think, however, what makes me lean towards fixing now is that I do not believe mortgage rates/deals will get any cheaper than they are now. the longer i leave it, the more likely that fixed rates will rise as we get closer to the inevitable BoE Base Rate rise. Market Swap rates are beginning to show signs of increasing and although predicting a Base Rate rise is notoriously difficult, it will come eventually. I can't see a return to so-called 'normal' rates of 5-6% for a very long time though.

i suppose at the end of a 5 year fix, i could reduce my mortgage with whatever non pension savings I have at that point, that would take the sting out of a big jump in interest rates.

peterg1965

There is an alternative to the 5 year fix.... A 2 year fix at 1.89% which would save me £300 a month on interest payments. The 'gamble' is that the Base interest rate remains low and that there is another competitive fix available in the next 21 months - I think you can transfer to a new deal within 3 months of the previous one expiring with Nationwide...

Crystal ball time again, but I can't see a huge hike in the BoE base rate by sep/oct 2015.