What one would you pick?

chelseablue

Had our mortgage broker tell us his findings for us, our fixed rate of 1.79% ends in April

Either a 5 year fix with Virgin at 5.4% 

Or a 2 year tracker with NatWest at base rate plus 0.70% 

The fix will mean monthly payments of £450 a month more than the tracker at todays rate of course. 

I’m inclined to take a chance on the tracker but not sure I’m looking at it in the right way 

Any help would be appreciated 

rjmachin

IMO, a 5 year fix seems a long time to fix as things stand.   A lot can change in 5 years.

4 years ago, I took a 5 year fix at 3.04%, not long after I took that fix, rates dropped to the kind that you have now (1.79%).

My fix is due to end next October (2023), and it looks like I will be paying higher rates then

If I had taken a 2 year fix instead, I could have saved money with a cheaper fix after 2 years, but I sadly missed the boat.

I guess it is all about taking chances, you can get certainty with 5.4%, or take a risk with NatWest and if the interest goes above 5.4%, hope it does not last long.

Choirgrl

A key question for me would be the interest rate at which your mortgage payments would be unaffordable. ( Or unaffordable without impacting your standard of living to an extent you find unacceptable.) The closer that is to 5.4%, the more attractive the five year fix rate might be as a way of managing that risk.

Another key question is how likely you think the base rate is to rise to at least 4.7% and how long you think it will sit at or above that level. That of course is crystal ball territory.

Personally, my application has gone in this week for a five year fix at 5.39%.

kingstreet

chelseablue said:

Had our mortgage broker tell us his findings for us, our fixed rate of 1.79% ends in April

Either a 5 year fix with Virgin at 5.4% 

Or a 2 year tracker with NatWest at base rate plus 0.70% 

The fix will mean monthly payments of £450 a month more than the tracker at todays rate of course. 

I’m inclined to take a chance on the tracker but not sure I’m looking at it in the right way 

Any help would be appreciated 

What will you be paying if BoE base rate rises by, say, 1% in two weeks?

chelseablue

kingstreet said:

chelseablue said:

Had our mortgage broker tell us his findings for us, our fixed rate of 1.79% ends in April

Either a 5 year fix with Virgin at 5.4% 

Or a 2 year tracker with NatWest at base rate plus 0.70% 

The fix will mean monthly payments of £450 a month more than the tracker at todays rate of course. 

I’m inclined to take a chance on the tracker but not sure I’m looking at it in the right way 

Any help would be appreciated 

What will you be paying if BoE base rate rises by, say, 1% in two weeks?

If (or when) that happens the tracker would move up to be 3.95%

kingstreet

Yes. I understand that. I was asking about the monthly payment and then how you would feel about it.

chelseablue

Sorry, the monthly payment on the tracker at 3.95% would be £906 a month.

The monthly payment on the fix is £1,093 

Would rather the £906 a month but if the base rate went to 6% the tracker would then cost us £1,273 and so on

sammyjammy

Why is the only fix option 5 years?  Can't they find a two year fix?  It doesn't sound like the tracker is suitable for you, lots of stress and worry, that saving could get wiped out in a month.  Nobody can foresee the future but I would go with worst case scenario and how you would cope with that.

housebuyer143

chelseablue said:

Sorry, the monthly payment on the tracker at 3.95% would be £906 a month.

The monthly payment on the fix is £1,093 

Would rather the £906 a month but if the base rate went to 6% the tracker would then cost us £1,273 and so on

I had the same dilemma last week. You need to ask yourself when do you think the base rate is going to get to 6 if at all? And then how much money have you spent by fixing while waiting for the base rate to get to 6?
If you were spending £200 extra a month for say 4 or 5 months on the fix, that's a cushion in case the rates do get to 6 for the same amount of time?

It's a hard one really. I personally wouldn't fix at the high rates and I'm staying on my tracker. Time will tell if it was the right move.

chelseablue

sammyjammy said:

Why is the only fix option 5 years?  Can't they find a two year fix?  It doesn't sound like the tracker is suitable for you, lots of stress and worry, that saving could get wiped out in a month.  Nobody can foresee the future but I would go with worst case scenario and how you would cope with that.

Just spoken to our broker we could do a 2 year fix at 5.79% 

kingstreet

Not too popular in the last ten years but many lenders do allow a product split, so you could take half on a tracker and half on a fix.