2 Year Fix, 2 Year Tracker or 5 Year Fix

IAMIAM

HSBC Exisiting Customer due to renew 1st July.
4.44% 2 Year Fix
4.74% 2 Year Tracker
4.39% 5 Year Fix

I have currently applied for the tracker with the presumption it will be 4.49 or even 4.24 by July/Sept when I switch hence why I have avoided current fixes as the tracker will likely go below the fixes, if i were to secure one of them now....am I thinking correctly with this? Anyone any thoughts. Balance 175k, 35 years. I am hoping to fix again when rates are around 3.5 probably or in 2 years....although I sense a rate war is brewing so could be there sooner....

RelievedSheff

Can you not find better rates elsewhere?

Newbie_John

If you're doing a product transfer then it's very quick, nobody knows what rates will be in the middle of June and as they seem to be going down - I'd wait till then.

IAMIAM

Good point with this, thanks!

movilogo

At this moment the tracker seems best. Interest will go down further even if not immediately. Usually banks decide fixed rates so that after one BoE rate reduction, fixed rate is worse than tracker rate. Since the outlook is BoE rate will go down, tracker is better bet.

Two more advantages of HSBC tracker - unlimited overpayment + you can switch deal anytime without penalty

IAMIAM

movilogo said:

At this moment the tracker seems best. Interest will go down further even if not immediately. Usually banks decide fixed rates so that after one BoE rate reduction, fixed rate is worse than tracker rate. Since the outlook is BoE rate will go down, tracker is better bet.

Two more advantages of HSBC tracker - unlimited overpayment + you can switch deal anytime without penalty

This is exactly my thought process. If I fix now, by the time I complete, the tracker will become the same rate as the fix. I will benefit from the tracker reducing further twice or maybe 3 times over the course of the tracker before fixing long term again....

BikingBud

movilogo said:

At this moment the tracker seems best. Interest will go down further even if not immediately. Usually banks decide fixed rates so that after one BoE rate reduction, fixed rate is worse than tracker rate. Since the outlook is BoE rate will go down, tracker is better bet.

Two more advantages of HSBC tracker - unlimited overpayment + you can switch deal anytime without penalty

And similarly if rates go up the tracker goes up.

or ask Shoe Shine Johnny

@iamiam

35 year is a very long time and generally the debt erodes in real terms due to wage inflation so appearing to be cheaper but time also adds a massive amount, approaching 50%, of extra interest between 25 and 35 years:

• @4.44% for 2 yrs going to 5% > Int payable - £193K - Mthly payment £821 then £880
• @4.74% for 2 yrs going to 5% > Int payable - £195K - Mthly payment £854 then £882
• @4.39% for 5 yrs going to 5% > Int payable - £189K - Mthly payment £816 then £876

The potential saving doesn't really appear to be in the interest rate but attacking the duration, reducing to 25 yrs, would make a significant difference:

• @4.44% for 2 yrs going to 5% > Int payable - £129K - Mthly payment £966 then £1013
• @4.74% for 2 yrs going to 5% > Int payable - £131K - Mthly payment £996 then £1021
• @4.39% for 5 yrs going to 5% > Int payable - £126K - Mthly payment £961 then £1012

Being more aggressive again and reducing to 15 yrs

• @4.39% for 5 yrs going to 5% > Int payable - £69K - Mthly payment £1328 then £1367

Conversely you might decide that you have excess and wish to pay £1000 into savings or pension or invest in bonds/stocks etc expecting to outperform the interest savings and pay it all off as late as possible.

Whilst that might work, you need to do the maths and then decide what you can tolerate or what fits best with your longer term plan but arguing over small differences in interest rates and short fixes seems to miss the point a little when most savings can be achieved by reducing the loan term.

Obviously the numbers will be different if the rate drops to 2.5% or such or even goes back towards 8 or 9% but that is where the crystal ball comes in - Nobody knows, anybody that says they do are guessing and nobody else will carry this for you if it goes wrong.

So you need to develop your own understanding to determine what you aspire to and can tolerate, after all 35 years is likely to be around half your life and maybe all of your working life. A long time to carry debt but they can both come down together.

*Original loan capital needs to be added back into achieve total cost.
**Mortgage costs have been omitted and that might wipe out any perceived savings due to fees for frequent short term rearrangements.