Tracker mortgages

rich987652

Looking at some tracker mortgages, and Nationwide are offering a 2 year tracker at + 0.89%, and a 5 year at + 1.54%

My question is if tracker rates increase when interest rates go up. So let's say after 2 years base rate is at 1%, so the interest rate on the 2 year deal is now 1.89%.

Is it likely that because rates have gone up, in 2 years time a tracker rate of +0.89% is unlikely to be available? If the tracker rate (I.e. the amount above the base, not the total rate) is unrelated to the movement in interest rates, then I'm assuming there is never a reason to go for the 5 year tracker at higher rates.

Not sure if I've worded this clearly enough....

anniecave

You need to consider the term of the mortgage. Or how long you are going to stay with the mortgage before you re-mortgage.

The +.89 is for 2 years, then it goes up to a higher rate. So you'll be paying +.89 for 2 years and the higher rate for another 3 years (assuming you keep the mortgage for 5 years).

So if you look at the interest rate you'll be paying (which determines how much interest you pay) then the +1.54% for 5 years means you pay much less interest over a 5 year period.

Of course the monthly payments are different and the amount of capital you'll have paid off is diffferent with each, at the end of a 5 year period.

Some mortgages (like nationwide) don't have early repayment fees so you could switch sooner than the 5 years if you wanted, but there are arrangement fees and surveys etc each time you you take out a mortgage so you'd need to factor this in too.

rich987652

The reality is that I would switch do a new deal after 2 years with the +.89%, so in a nutshell I guess my question is the likelihood of rates such as +.89% being available in 2 years and beyond. Have rates such as +.89% being available historically or are they very recent?

jimjames

rich987652 wrote: »

The reality is that I would switch do a new deal after 2 years with the +.89%, so in a nutshell I guess my question is the likelihood of rates such as +.89% being available in 2 years and beyond. Have rates such as +.89% being available historically or are they very recent?

Fairly recent for short periods. Available previously when rates were higher. My Nationwide is base +0.29% lifetime tracker.
However 2 years time will hit Brexit so who knows what rates will be available then...

Thrugelmir

rich987652 wrote: »

The reality is that I would switch do a new deal after 2 years with the +.89%, so in a nutshell I guess my question is the likelihood of rates such as +.89% being available in 2 years and beyond. Have rates such as +.89% being available historically or are they very recent?

The BOE has provided cheap money to lenders under the Mortgage Funding for Lending Scheme. From 2018 this money will start to repaid to the BOE. Lenders will therefore set rates based on the commercial cost of raising the funding at the time. Who knows what the future holds? Other than the US Fed looks highly probably to lead the way in setting global Central Bank Lending rates over the years ahead.