Switching from low-rate tracker - am I mad?!

Will006

Hi,

One of my mortgage sub accounts is coming to the end of a fixed period, so I'm planning to switch to a 5yr fixed at 1.09% (no fees).

The majority of my mortgage is still on a tracker at base rate +0.36%. This has served me amazingly well over the last 12 or so years, but I'm now thinking I should ditch it for the same 1.09% 5yr fixed (monthly payment would be only £7 extra).

The 5yr fixed obvs has ERCs, but is portable. 

Seems like a good move (I have some savings, so could reduce the mortgage if rates are high at the end of the 5yr fixed), but saying goodbye to such a low-rate tracker leaves me feeling a bit nervous.

I've had advice from an IFA (who suggested the above is sensible), but would be interested to hear what people think here before I take the plunge!

Thrugelmir

How long is your remaining mortgage term? 

Will006

Thrugelmir said:

How long is your remaining mortgage term? 

I've got 16 years left.

getmore4less

swapping 0.46% for 1.09% 

Since you did not say the amount lets go with £100k over 16years(it  scales)

amount	rate	payment	owing
£100,000.00	0.46%	£567.81	£67,869.76
£100,000.00	1.09%	£567.81	£70,601.18

£2,700 per £100k worse off if rates don't rise


looking at a £7 difference on those rates over 16y gives a very small mortgage ~£25.4k

I get it in the range  £22k £29k  £6-£8 difference to cover different roundings

Will006

Thanks. At the moment, my mortgage is:

£90k tracker at BR+0.36%
£38k fixed at 1.89%

Reducing the rate on the smaller sub-account helps mitigate the cost of increasing the rate on the larger account - hence why the monthly payment will be only around £7 extra at 1.09% compared to what I'm paying now.

I could save money by keeping my tracker and switching only the smaller account to 1.09%, but it feels like rates will increase over the 5yr period. 

Clearly if rates don't do much over that period I will have paid a fair whack in extra interest payments, but I guess that's the price of fixing. 

The fact I can fix my entire mortgage for 5yrs while paying similar to what I am now is what's leaning me towards ditching my tracker. If rates haven't moved much, I'm hoping I will be able to get a similar fixed deal in 5yrs time. 

hampshiretaf

I’m in exactly the same situation as you. I’ve just refixed at 1.34% one element that just finished the prior deal. But I have a further £50k on a tracker at 0.89% above base. It has served me well for the last few years. Ten years left to go. I’m having the same internal debate. Fix it too for five years and pay a few bob more per month? BR only needs to rise to 0.5% for the new deal to be better (in the five year outlook anyway). I prob should do it?

Thrugelmir

+0.36% for life is an extremely good rate. Another way of addressing the issue is to overpay the fixed rate mortgage by whatever you can afford and clear this debt ahead of schedule. Any increase in interest rates will be mitigated by a lower amount owing. 

Will006

hampshiretaf said:

BR only needs to rise to 0.5% for the new deal to be better (in the five year outlook anyway). I prob should do it?

Yes, that's my current thinking... but then I read this:

Thrugelmir said:

+0.36% for life is an extremely good rate.

...and I'm reminded that I have a tracker that no lender (to my fairly poor knowledge) is anywhere close to offering.

I'm in the fortunate position of having enough savings to clear the smaller mortgage completely, but I'm always nervous about parting with large sums of money (part of the reason I have the savings in the first place!). I guess I should see it as investing money in something that's likely to give far better returns than any savings account - albeit returns I'm unlikely to see until the day comes when I want to downsize.

Oh dear... that's another evening of me trying to decide what to do, then. No doubt my lender will withdraw the 1.09% offer as soon as I decide to take it.

getmore4less

hampshiretaf said:

I’m in exactly the same situation as you. I’ve just refixed at 1.34% one element that just finished the prior deal. But I have a further £50k on a tracker at 0.89% above base. It has served me well for the last few years. Ten years left to go. I’m having the same internal debate. Fix it too for five years and pay a few bob more per month? BR only needs to rise to 0.5% for the new deal to be better (in the five year outlook anyway). I prob should do it?

Many people get that wrong, your tracker starts out 0.35 lower than your new rate accumulates saving till rate rise which give headroom going forward.

payless

Not that it would change your decision…. Are you sure your base+0.36 also has 16 years left on it? Think that was likely a 2007/8 product ?? 

Thrugelmir

payless said:

Not that it would change your decision…. Are you sure your base+0.36 also has 16 years left on it? Think that was likely a 2008 product ?? 

My July 2007 liftetime tracker was base +0.35%.  Ended up clearing the mortgage early.