Is it stupid to go for a tracker mortgage?

Keekles

MsWow wrote: »

One is a 5 year fixed and one is 2 years tracker.

Like for like, I think KS and I are on the same wavelength in terms of, a 2 year fixed will likely be the same interest rate as a 2 year tracker; in the current market.

The difference is, that tracker may increase within 2 years, but the fixed wouldn't move for 5.

I'd compare a like-for-like tracker to a fixed for both 2 and 5 years. Comparing a 2 year product to a 5 year anything is always going to be cheaper.

kingstreet

It's all down to personal preference and outlook for interest rates, which is a crystal ball job.

However, there is no future upside to a tracker, as it certainly isn't going to fall. Only you can decide if the payment certainty of a fixed rate will make you feel more comfortable and balances the lower payments at the outset.

Thrugelmir

MsWow wrote: »

Right. So what should we take into consideration?

Follow on rates after the fixed term has ended.

Cost of remortgaging to another lender.

The initial rate may be lower but what will be your options in 2 years time. Interest rates could well risen within 12 to 18 months time.

getmore4less

Unless you need to fix a good full term/lifetime low cost tracker will often work out cheaper in the long run.

Short term deals(fixed or tracker) with higher follow on rates are always a risk,
You don't know you will be able to get a deal.
You don't know what the fees will be.
You don't know what deals will be available.

GarethB84

That's an interesting question asked by the original poster. If you take the rate and fees in isolation then at the moment I would think that a tracker isn't a good deal as the rates will only go up.

However, I'm in the process of applying for one myself - remortgaging to HSBC lifetime tracker fee free at base + 1.79%.

The reason being first of all it's free to join, and no penalty to leave at any time (except of course any additional work required in addition to standard legal fees).

It also gives the option to overpay as much as we like. This is important as already we overpay £250 per month and we will have work share save schemes maturing each year from now on.

Our relationship will have a defining moment in the next two years which will mean selling our current house - either we'll be upsizing to start a family in which case we can port, or going our separate ways as we can't agree our future. With fixes the ERCs could make this process very expensive, and this product gives us that flexibility.

And finally, as there isn't a revert to SRV rate at a particular time it gives the flexibility to look for a new deal at any time, rather than a predetermined period of time.

The reasons above make sense to me, but would interested to hear the opinions of the more learned members of the forum.

Thrugelmir

GarethB84 wrote: »

However, I'm in the process of applying for one myself - remortgaging to HSBC lifetime tracker fee free at base + 1.79%.

In more normal times you would expect mortgage interest rates to average some 2% to 2.5% above base. So 1.79% is a rate you are unlikely to go wrong with in the years ahead.

GarethB84

Thrugelmir wrote: »

In more normal times you would expect mortgage interest rates to average some 2% to 2.5% above base. So 1.79% is a rate you are unlikely to go wrong with in the years ahead.

Thanks for the response. That reassuring to hear.

Thrugelmir

GarethB84 wrote: »

Thanks for the response. That reassuring to hear.

The best protection is ultimately to overpay the mortgage or save the money if deposit rates are higher. There's no way of forecasting the future. So better to make decisions where you can influence the outcome rather than leave it to the roulette wheel of life.

GarethB84

Thrugelmir wrote: »

The best protection is ultimately to overpay the mortgage or save the money if deposit rates are higher. There's no way of forecasting the future. So better to make decisions where you can influence the outcome rather than leave it to the roulette wheel of life.

Indeed, we've already overpaid about £13k in the first two years of the mortgage life, and going from 3.95% to (hopefully) 2.29% will allow even more in the near future.

Thank you for the help.