Fix or Tracker

Maka344

We are looking at our mortgage options and are stuck between a fix and a tracker:

£605k mortgage (in the south )
£265k equity 

Fix: 4.57% 2 years @ £2888 and £1k product fee
Tracker: 5.40% 2 years @ £3208 and £1.5k product fee

With the fix, it is obviously fixed for the period and if BoE base rate drops by a decent amount, then we will be disappointed and stuck on a tracker with an ERC. However, the tracker would take advantage of any base rate reductions.  

Maka344

Any advice? I do appreciate it is situation depending. 

amanda1024

I don’t think we can advise you, because we can’t know which way rates are going to go. All I can say is that each time I’ve had a similar choice, I’ve chosen to fix, and four times that meant I paid slightly more but the fifth time (2021) that meant I saved a considerable amount. I also had certainty of what my mortgage payments would be so could plan better. Are there any options to fix for longer?

ReadySteadyPop

Maka344 said:

Any advice? I do appreciate it is situation depending. 

Don`t bet on rates dropping in my opinion, rate cuts are starting to look pretty unlikely..

fergie_

Have you looked at 5 year rates?

Maka344

Thanks all. 5 years is 4.35%/£2807 so £81pm cheaper than the 2 year fix. Thinking the best option is a fix with a lender that lets you apply a new product switch at the 18 month mark. 

ReadySteadyPop

That is very low rates.

Hoenir

Maka344 said:

With the fix, it is obviously fixed for the period and if BoE base rate drops by a decent amount, then we will be disappointed and stuck on a tracker with an ERC.

There's no guarantee that fixed mortgage rates are going to fall in line with BOE base rate. While it's logical to think there's a direct correlation beneath the surface it gets far more complex. 

ReadySteadyPop

Hoenir said:

Maka344 said:

With the fix, it is obviously fixed for the period and if BoE base rate drops by a decent amount, then we will be disappointed and stuck on a tracker with an ERC.

There's no guarantee that fixed mortgage rates are going to fall in line with BOE base rate. While it's logical to think there's a direct correlation beneath the surface it gets far more complex. 

There is no guarantee that BOE base rate is going to fall either, everything at the moment is pointing to inflation and there is talk of the FED having to raise rates again.

Jemma01

When I chose tracker, I chose it because I want to pay as much as I can per month without penalty. But then I had 70% deposit, so my borrowing is very low and my monthly rate is 1.2k. 

Your monthly rate is already high, overpayment would probably be limited. If I were you, I'd probably fix for two years and see where the market goes.

Zoe02

I went for 2 years fixed but if you want certainty then maybe 5 years.

Not sure if BOE will increase so maybe tracker also attractive.

I opted for the 2 years fix with no product fee at 4.72% which started in February.