2 Yr Fixed Rate vs. Tracker

kweelo

Good Morning  - hoping someone can help.

We are coming to the end of our 5 yr fixed rate (1.84%) in Feb 23. We have been offered a few deals by our exisiting mortgage provider (assuming they haven't pulled them!) and we are considering either a tracker at 2.06% above SVR or a 2 year fixed deal at 4.08%. Clearly, interest rates are going to rise, possibly to 6%, meaning our tracker rate could be 8%!

When we change our mortgage (Feb 23) we will have approx £50k outstanding and we are looking to pay the mortgage off in full in Apr 24. If we take the fixed rate - we can overpay a maximum of 10% of the mortgage and if we pay it off early incur a charge of 2% of the mortgage. Do I take the fixed rate or the tracker rate? 

Currently my interest on the mortgage is £95 a month, assuming 8% what would be the increase in interest payment be per month?

Thank you in advance.

K_S

@kwelo You can play around with the mortgage calculators here to look at different scenarios/rates.
https://www.moneysavingexpert.com/mortgages/mortgage-rate-calculator/

Do you mean a tracker (x% OVER the BoE rate) or a discount-variable (x% BELOW the lender's SVR)?

kweelo

Thank you - Yes X (2.06%) over the BOE rate.

Just looking at the mortgage rate calculator now. Thanks for replying

K_S

@kweelo With regard to the comparison between the BoE+2.06% tracker (currently at 4.31%) vs the 2 year fix fix at 4.08%

- if you are adamant about wanting to pay it off in full by Apr 2024, then the tracker may be worth considering so you can make use of unlimited overpayments and reduce the capital every month and pay it off in full by Apr 2024.

- if you think you may need to stop overpaying or might be happy paying off the mortgage after Feb 2025, then the fixed would give you more certainty. And given the savings rates currently on offer, it's quite plausible that after the next rate hike you might be able to get around 4% on savings accounts if you hit your overpayment limits.

All said and done, the balance is relatively low, you're only talking about a 2 year window and you appear to have access to sufficient funds, so you're unlikely to be too much worse off in hindsight irrespective of what direction interest rates take