mortgage crystal ball – fixed or tracker

  • This topic has 12 replies, 12 voices, and was last updated 3 years ago by  rone.
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  • mortgage crystal ball – fixed or tracker
  • meeeee
    Member

    My fixed rate is ending soon and going to switch to another deal, whats the general opinion on interest rates over next few years and should i go tracker or fixed.

    Only looking at a 2 or 3 year deal

    somouk
    Member

    I would fix, they shouldn’t go any lower so you won’t benefit from a drop with a tracker but there is a lot of potential for them to go up later in your deal.

    Premier Icon jam bo
    Subscriber

    2-3yrs ago everyone was dead certain they were going up.

    I’m happy to risk a tracker. others not.

    If only for 2 to 3 years I’d go tracker.

    Fixed if you could get a decent 5yr rate.

    b r
    Member

    Tracker, anything else is just betting 🙂

    trail_rat
    Member

    depends on the deal your getting.

    i couldnt get anything like a better deal on a tracker than what i pay on my fixed at the the time.

    To do so i had to leave my current provider and have a new valuation at a lower LTV than my currrent supplier was able to provide – as in they valued the house much higher giving me the max LTV – the trackers i looked at were willing to give me a valuation about 30k less leaving me in a lesser LTV bracket and thus a higher tracker interest rate.

    but thats a very specific circumstance . dont blindly assume that the lowest headline rate is always your best option. many spreadsheets were deployed in forming my decision 😀

    mcobie
    Member

    Your lenders variable rate may not be very competitive, so you need to work out your costs to switch to a tracker (lender arrangement fee/valuation/solicitors etc.) and then you need to factor in the same costs of subsequently securing a fixed rate and decide at what point rate rises of the tracker mean your tracker becomes the same or more expensive as the fixed rate…by which point the fixed rate will have gone up anyway, so you’ll be worse off.

    There are some great 5 year fixed deals at the moment; personally that’s where I’d be looking.

    steve_b77
    Member

    We’ve just gone for 5yr fixed as the base rate tracker wasn’t worth the 1% saving in our book

    Stoner
    Member

    just remember you have no better (nor worse) information than the rest of the market/financial industry in order to make a “better” decision about the relative value of fixed or variable rates. Your gut instinct does not count as information BTW 🙂

    What you do have, is better information about your own circumstances that are not part of the financial market:

    1) income prospects
    2) saving plans
    3) how you value money earned today vs tomorrow
    4) inheritance prospects
    etc etc

    Get a tracker with no tie in fees or term so you can take advantage of the low interest rates and swap as soon as the rates start to go up. Given that the rates are not likely to go up any time soon you will save more than a fixed rate will cost you. 2 years ago I switched to a simple variable rate with HSBC, nice low rate, no tie ins at all and they’ve already passed on the BofE reduction onto me.

    Absolutely no point going for a fixed rate right now especially a short term fixed rate with so little risk of interest rates going up in the short term. If I was just taking out a 25 year mortgage and could get a nice low life of mortgage fixed rate then it might be attractive, but they don’t exist as far as I’m aware.

    5lab
    Member

    thing is, you can have the same information as your bank.

    When you fix, you are not ‘betting against your bank’. Your bank doesn’t care, they’ll sell the mortgage off, for the length of the deal, at a margin above the current swap rate.

    below shows the current swap rates (ie the interest payable on borrowing money bank-to-bank) :

    http://www.mortgagesforbusiness.co.uk/research-data/money-markets/

    libor (overnight) is ~0.3%
    2 year is 0.4%
    5 year is 0.47%
    10 year is 0.7%

    basically this is showing that the money markets are pricing an average bank rate of just under 0.7% over the next 10 years. The additional money you pay on your fixed rate is the risk of you yourself defaulting, plus the costs to run the bank/profit margin. The closer your fix is to the swap rate, the better the deal you are getting

    For me it also depends on how much you have to pay off and your income. If its a smaller amount its safer to gamble.

    Premier Icon rone
    Subscriber

    Nationwide 2 Year tracker. (need an LTV of about <60%)

    Tracker for me 1.74% shortly to 1.59% – was for two years – but you can remortgage it at any time on the same product / better deal. No fee, and often £250 cashback thrown at you when you do.

    Can overpay without any penalty. The flexibility is great.

    I can’t and couldn’t see interest rates jumping large amounts in one go (and if it does your free to get out) – so well worth the risk for me. I made some calculations on the equivalent fix at the time and interest rates would’ve had to jumped a lot and soon to lose to a tracker. Given the economy I thought it was a fair gamble.

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