Fixed or track

[bmwmike]

About to remortgage and can get a 150k 30%LTV at 1.99% tracker (lifetime) or fix for 2.14% for five years.

I'm leaning toward tracker as I won't have to buy another £750 product fee in 5yrs time and I doubt interest rates will go up in five years.

What would you go for and why?



Thanks

[Simpo Two]

Tracker, not only for the reasons you state but because when I see a 'fixed' deal I assume they know more than me and therefore will make more money from it.

[thebraketester]

I would do fixed, just because I like the "security".

[Ozzie Osmond]

bmwmike said:

About to remortgage and can get a 150k 30%LTV at 1.99% tracker (lifetime) or fix for 2.14% for five years.

• Interest cost at 1.99% = £2,985 p.a. or £248.75 a month

• Interest cost at 2.14% = £3,210 p.a. or £267.50 a month

A rate rise as small as 0.15% would make the tracker the same price as the fix - and IMO in the next couple of years that's as certain as night following day.

So it all comes down to how you feel about what happens in 5 years time when your fix would end. Could you handle mortgage costs of £500 per month, or more? If not, you could usefully find out the cost of a longer term fix even though the initial rate may look quite a bit higher.

[Ozzie Osmond]

bmwmike said:

I'm leaning toward tracker as I won't have to buy another £750 product fee in 5yrs time

That fee is only £12.50 a month. Is that really enough to swing your thinking?

It all comes back to how much rate increase you think you can swallow, and where you think rates might go.

[Roger Irrelevant]

Simpo Two said:

Tracker, not only for the reasons you state but because when I see a 'fixed' deal I assume they know more than me and therefore will make more money from it.

Ditto. I prefer long-term trackers since A) that's the way you're likely to pay the least over the term of a typical 25 year mortgage, B) I can afford the repayments even if rates rise considerably, C) there's usually no early repayment charge and D) there's less mucking about remortgaging (and paying fees, which a lot of people seem to forget about when doing the calcs, usually to the benefit of the lender).

I totally understand the desire for security that a fixed gives, but I'd rather take the risk with a cheaper tracker. YMMV etc.

[Simpo Two]

Personally I'd be bloody delighted if interest rates went back to 15%

[Jockman]

Ozzie Osmond said:

bmwmike said:

I'm leaning toward tracker as I won't have to buy another £750 product fee in 5yrs time

That fee is only £12.50 a month. Is that really enough to swing your thinking?

It all comes back to how much rate increase you think you can swallow, and where you think rates might go.

Post brexit and the potential for recession? Classic recession tactics are QE and rate cuts.

[bmwmike]

Not having to remortgage is a plus point for sure.

The tracker I'm looking at is BoE rate plus 1.49%

Rates at 6.5% I could swallow up, that's an extra 400 quid. I'm more loathed to spend any more than I need to rather than worrying about the payments themselves as such. The mortgage is relatively small.

I guess nobody has a crystal ball but I can't see rates going up for a long time unless there is some currency related shock and they hit 15% odd again for a day to keep the £ up. IIRC the conditions that caused that don't actually exist today do they? Wasn't the £ required to stay within a specific range.

To some degree I think immigratiom has replaced interest rates as the go to wage control lever.

So my head says rates will be bobbing around zero for a long time yet.

[DonkeyApple]

bmwmike said:

About to remortgage and can get a 150k 30%LTV at 1.99% tracker (lifetime) or fix for 2.14% for five years.

I'm leaning toward tracker as I won't have to buy another £750 product fee in 5yrs time and I doubt interest rates will go up in five years.

What would you go for and why?



Thanks

What's the physical cost difference between the two for you personally?

If you look at the tracker there is no upside to be had from rates falling further only upside risk.

With regards to upside risk, what are the odds of a .25 rate hike within 5 years? Well it's probably closer to being a certainty than anything else.

If I'm honest, I cannot see any logic for a tracker versus a fix when the rate difference between the two is so negligible. The risk of the tracker makes it far more expensive in reality and I'd view the 0.15 discrepancy as a marketing gimmick.

Obviously, if it's a tiny mortgage then the roll over cost in 5 years has a bearing but whether it outweighs the risk of rate rises is defined by the size of the debt and it would have to be pretty small.

I don't like 2 year fixes as they are just a wheeze to create follower activity and serve no purpose other than to generate max fees but 5 years is a credible period and a 0.15 premium to hedge rate hike risk seems a no brainer. Especially as more than 0.25 is expected well within 5 years.

[sidicks]

DonkeyApple said:

What's the physical cost difference between the two for you personally?

If you look at the tracker there is no upside to be had from rates falling further only upside risk.

With regards to upside risk, what are the odds of a .25 rate hike within 5 years? Well it's probably closer to being a certainty than anything else.

If I'm honest, I cannot see any logic for a tracker versus a fix when the rate difference between the two is so negligible. The risk of the tracker makes it far more expensive in reality and I'd view the 0.15 discrepancy as a marketing gimmick.

Obviously, if it's a tiny mortgage then the roll over cost in 5 years has a bearing but whether it outweighs the risk of rate rises is defined by the size of the debt and it would have to be pretty small.

I don't like 2 year fixes as they are just a wheeze to create follower activity and serve no purpose other than to generate max fees but 5 years is a credible period and a 0.15 premium to hedge rate hike risk seems a no brainer. Especially as more than 0.25 is expected well within 5 years.

What he said!

[bmwmike]

Agree on the .15 being a no brainer but even if rates go up .15 in the next 5 years equalising the fix and tracker, I'd bet the spread would be much wider by then. So, the tracker would be relatively the same amount as today's fix but probably less than a 5yr fix at that point.

Crystal ball territory admittedly.

Think I'm going to borrow another 50k and then fix on the larger mortgage.

Thanks for all the insights.

Cheers

[red_slr]

We went fixed late last year for 5 yr. There was very little difference between the 2 rates and whilst it now looks like rates are not going to change much for perhaps 2-3 years + we are not too fussed about the few quid a month difference and if rates do go up we save a few quid.

[CaptainSlow]

Simpo Two said:

Tracker, not only for the reasons you state but because when I see a 'fixed' deal I assume they know more than me and therefore will make more money from it.

Huh? They don't and neither do the people they get their funding from. It will cost the bank more to match fund a five year deal due to the risk of uncertainties in the future, this is then built into the product price. A long term fixed deal may be less profitable than a tracker depending on the bank's current deal pricing.

[bmwmike]

Went to sign up for a fixed deal this morning with HSBC 2.04% for five years but a 999 product fee. Sums say it's probably worth the fee over the 2.14 rate (750 fee) or 2.39% at no fee. 10% over payments allowed so no brainer decision at this level over tracker as others have said.

Anyway I wanted to simultaneously remortgage and get an extra 50k for home improvements but it's not possible to do that via the website. I have to take 2 products out (confirmed by speaking to HSBC) pay 2 product fees then request one of the fees to be refunded.

Crazy.

Anyone else had this? It might actually be easier to move to a different bank.

[gibbon]

All good and logical comments, only thing i would add is look at the get out cost of the product, and think carefully about how your life may look in 5 years, its quite a long time, and the exit costs can be eye watering.

On high value mortgages (not implying this is) I quite like super low rate 2yr fixes, adds an element of liquidity to later life, and the fees are less significant on high value mortgages.