Any advice on Tracker, 2 yr fixed, 3 yr fixed, 5 year fixed?

SootySweep1

Hi
Personally I'd go with the tracker but I'd also try & save on a monthly basis at least some of the difference between the tracker rate & the 2 year fixed so that if interest rates do go up you know what to expect financially and in the mean time you're building a bit of a nest egg you can use in the future.

Nobody has got a crystal ball in terms of interest rates but they've been incredibly low for a long time & now they're returning to a more normal level.

Jen

icicat

Hey guys, some really good advice here, appreciate the help. I instructed to go with a two year, though did this before reading some of the recent replies. A 3 or 5 year would make sense the way things are going I honestly cant see rates dropping below 5%, so 5.89 might be reasonable and more manageable.

Though three years is also better than two, as once the fix ends I couldn't imagine anything worse then moving on to an even higher rate than 6.2%. At least with the 5 year and 3 year I can still afford, even if the rates drop a little lower over time.

I'm enquiring about the 5 yr fixed break out charge EMC and see if it is reasonable compared to if the rates dropped considerably and how much I would save breaking out.

fergie_ mentioned and I have have heard this before where people overpay at the beginning when interest is at it's highest. Is this to shorten the term by paying off the interest quicker, therefor not having it so high in the long run?

icicat

SootySweep1 said:

Hi
Personally I'd go with the tracker but I'd also try & save on a monthly basis at least some of the difference between the tracker rate & the 2 year fixed so that if interest rates do go up you know what to expect financially and in the mean time you're building a bit of a nest egg you can use in the future.

Nobody has got a crystal ball in terms of interest rates but they've been incredibly low for a long time & now they're returning to a more normal level.

Jen

Yeah I've heard this also. As rates are much better for savings now, going on a lower rate and putting the difference into a high interest savings account might be the way to go. I still think a tracker right now is too risky for me as I like to know my budget for each month and a huge increase would be scary. The 5 year is definitely feeling more like the best option over the two year now. 

MarcMCFC1986

If I were in your position, I'd take a punt on the tracker - they could go up more, but I can't see it. The BoE, and Government, know the position it is putting people in and are going to have to do something about it soon, so personally I can't see them going much higher - and will soon start dropping.

The news on inflation yesterday suggests things are starting to head in the right direction (down), albeit slowly. 

fergie_

fergie_ mentioned and I have have heard this before where people overpay at the beginning when interest is at it's highest. Is this to shorten the term by paying off the interest quicker, therefor not having it so high in the long run?

Have a play with the overpayment calculator here - its got a very useful graph:

https://www.natwest.com/mortgages/mortgage-calculators/mortgage-overpayment-tool.html

The way to imagine it is initially your standard repayments cover a small amount of capital and a lot of interest (as the rates are now higher, a lot more interest - hence the increase in people's repayments), but over time you pay off more capital and have less interest to cover, until you reach the point there is nothing to pay.

However, if you make overpayments at the start, the whole of the overpayment pays off capital and therefore you no longer pay interest on that bit of paid off capital for the rest of the term. Its maybe an extreme example, but over 25y, overpaying £1000 in year 1 could save you £3500 (depending on the interest rate) and reduce the term by 2 months.

BikingBud

@fergie_

Quite a blunt instrument, have you seen the mortgage tools on here:

http://locostfireblade.co.uk/spreadsheet/Index.html

much more adaptable and can enable much better understanding of the impact of any changes to your mortgage, set one sheet up for your current situation and the other to assess the options. 

icicat

Ah yes that makes total sense. The more overpayments you make in the beginning will lower the debt and in turn lessen the interest payments. So if I paid half my mortgage off today I would be paying interest on only half of the loan.

So yeah pretty torn between tracker and 5 year now. I need to ask if there are any fees involved with the tracker in case I wanted to quickly jump on to a fixed, or if there is an option to jump to fixed. Would need to know how flexible it is basically, like the Virgin deal someone mentioned earlier.

I looked at the percentage for inflation chart and it does seem to be coming down by June. No idea what it is for July, though seems it peaked to 9.6 in October and has come down to 7.3. Though thats only a 2.3% change in 8 months and the BOE goal is to get it down to 2%, so still could be a long way off I think until they lower the rate.

I guess we'll find out the next rate change by 3rd of August. If my offer comes in around then maybe that could help influence the decision more.

PixelPound

MarcMCFC1986 said:

If I were in your position, I'd take a punt on the tracker - they could go up more, but I can't see it. The BoE, and Government, know the position it is putting people in and are going to have to do something about it soon, so personally I can't see them going much higher - and will soon start dropping.

The news on inflation yesterday suggests things are starting to head in the right direction (down), albeit slowly. 

It all changes. The view a couple of weeks ago was that the BoE might do 0.25 but more likely to do 0.5 as relatively recent comments from BoE had markets a bit jittery. Now that inflation is below what they expected (but way above what it needs to be), then I suppose a 'no change' is possible.

I guess for a tracker you are hoping we are near the top of the curve, if the diff between fix and tracker is 2%. Though how many last November when the big jump in the base rate (2.25% - 3%) happened thought we'd be on 5% now?