to not be able to choose what kind of mortgage would be best for us?

[mrszimmerman]

I'm so confused. We have to choose quickly to get it all going and I'm so worried about making the wrong decision.
Everyone says the Bank's base rate will most likely stay low for at least a year in the hope of people continuing to spend money. And that massive increases in interest rates in the next five years would just cause unacceptable numbers of repossessions.
I would LOVE to know how people chose between the caution of a longer term fixed rate and the relatively low rates you can get at the moment.
I know everything is a risk
Fixed rate means you can plan and no surprises for however many years.
I'd just love to know what anyone else used as their deciding factor.
I know this should be in the finance pages, will move it there if anyone yells at me....!

I picked fixed rate as I like the security of knowing exactly what my payments will be. I wouldn't be tempted by a variable rate one personally. Depends on your income though, would you comfortably be able to afford it if it went up with interest rates?

I went for fixed rate too, but went for a long term fixed rate because eventually I think the interest rate will rise.

I wouldn't bother to fix for just a year as you would be paying the higher rate and then get hit by rate rises when your fixed term comes to an end. I think it's better for a longer term fix.

Just my opinion though - whatever you do is a guess to some extent

Our repayments on a tracker rate would be about £ 800 a month and the fixed rate would be more like 900 - 1000 a month. We are now paying 600 - 700 pounds a month.
I just wonder whether other people think the interest rates have to rise, I mean the have to don't they at some point?

I'm on floating and have no intention to switch. We have worked out we can afford for base rate to rise to around 10% before we would have a problem, and as I work in swaps (what fixed rtes are based on) for a bank, I'm constantly looking at what the predictions for rates will be. If the fixed rates started to look as if they may rise above 10% we'd look to fix then. It's such a pesonal decision though.

You see it would be really hard for us to fix now at 4. whatever % (for 5 years) but just doable.

And yet no one seems to think it conceivable that the Bank would let them rise that far because of the depth of the recession.
But inflation could force them to make it rise, is that right?
Also we have no idea about the stability of the world market thanks to Greece and the problems we helped them create, and Italy, Ireland, Sp and Portugal.
I just don't know how to make the decision.
If interest rates went up to 10% what would happen to the UK economy? Wouldn't it just collapse?
Sorry for wild economic conversation where I am clearly out of my depth.
This is why I feel so ill equipped to make this decision, it just feels like too much responsibility.
Dh is an optimist and I'm a pessimist which should bring us out in the middle.....

This isn't really an AIBU question, is it?

You might get more advice in the Proprty/DIY section, or even Legal.

fair enough... I said I'd go if asked!

Base your decision on how well or badly you would cope if interest rates went up significantly. No-one, not even the most well-versed economist, can tell you if and when rates will rise or what would be the top rate. So you have to make an intelligent guess that the average base lending rate of the last 10 years has been around 5% and it will probably get back there in the next 2 or 3. Say that made the payments go up another £200 a month. If it would be no biggie... go with the variable rate. If it would be a train-smash... go with a fixed rate.

FWIW.... if you choose a fixed rate look for one with low penalities for early redemption. That way, if the market changes radically before the fixed rate expires, you have the potential to switch.

Not yelling but think you will actually get more people who are doing mortgagey things at the moment hanging around there.

thanks Cogito, I really appreciate that, I am slightly numerically illiterate and find this whole process terrifying!

We're fixing for 5 years. Gives us a chance to get some more equity in the property and is less stressful.

Variable rates aren't that great for us as ftb with a 20% deposit so the savings weren't worth the risk in our case. Only needs to rise a couple of percent for the variable to be greater than our fix. Get very when people at work talk about being on trackers at 0.5% above base rate.

Should add.... again, if you go for a fixed rate mortgage, check not only the penalties for early redemption but also if there are penalties for paying off lump sums. If you are nervous about owing large amounts of money generally (which I may be wrong but that's what it sounds like) it can be reassuring to pay down some of the capital a little quicker than normal.

Also... worst case scenario.... banks are not so quick to go the repossession route these days as they might have been in the past. They're a lot more flexible about changing terms and doing more things to try to keep people in their homes. The property market being so poor at the moment, they know that they are more likely to get their money back by being flexible with the mortgagee than if they put the property up for sale.

Eventually you have to plump for something that you can live with and then stand by your decision.