Crystal ball question: fix rate or keep tracker?

guymo

Hi,

We all know that one cannot predict what mortgage rates will do. But we also all know that the BoE base rate almost surely can't go down, and is expected to rise in the next 18 - 24 months. So please polish up your crystal balls and help me decide what to do with my mortgage.

We currently owe £220k with 21 years to run. Our current mortgage is an offset tracker at BoE + 1.99%, so currently 2.49%. The offset part isn't really earning its keep because we spent most of the money that was in the savings account on some building work, so

I'm looking at the following deals:
- YBS 2 year fixed rate at 1.66% with fees of £980
- YBS 5 year fixed rate at 2.69% with fees of £1480
- remortgage with First Direct (current provider) at BoE + 1.53% (so currently a rate of 2.03%) with a fee of £1199.
- hold tight for a bit.

I am somewhat risk averse so the 5-year fix looks decent to me, despite its relatively high fee and increase in rate over my current rate. I could afford the payments if rates rose to 6% or so, though it would not be pretty. Higher than that would hurt quite a bit.

However I make the calculations, it's kind of close, with no more than £4k total either way over 5 years.

What would you do and what else should I consider when deciding? All thoughts much appreciated.

Cheers,

Guy.

Thrugelmir

My opinion. Stick with what you've got. The offset facility is a useful feature. 2.5% on instant access money is a good rate currently, something you won't come close to on any ISA .

A rate of 2% above base needs to be viewed in the long term as well. As your mortgage balance reduces then rate hopping becomes less and less viable. As the costs in changing will outweigh any benefits.

dimbo61

so you are paying approx £1132 a month and with the five year fix at 2.69% you would pay £1154 a month.
The fee is £1480 or £300 a year £25 a month ! for the security of knowing how much you will pay for the next 5 years.
Outstanding Balance in 5 years time would be Approx £179,900
OR take the risk and hope for NO INCREASES IN THE BOE BASE RATE for the next 3/4 years
0.5% increase would take your payment upto £1187 a month !!!!

guymo

Hehe, as I suspected, two responses and two different opinions. Thanks to you both for replying.

I think the answers illustrate that it's close and comes down to personal preference over risk. I tend to be risk averse but the startup costs of the 5-year fix are large (1480 fee, plus an increase of 0.2% in interest rate which amounts to 450/yr) so it's not a no-brainer.

What I have no clue about is what mortgage rates might be available in 2 or 3 years' time, if the BoE base rate rises to say 1.5%. I suppose nobody does!

Just to muddy the waters I've discovered the Nationwide 4-year fix at 2.59 --- another choice to mull over, which I might actually go with.

Thanks again.