Tracker or fixed mortgage.. Wwyd

[Soapboxqueen]

I know this is very much take a punt sort of question and there are no right answers but I need to sort things out in my head.

What would you do in this situation?

Tracker at 3.65%

Or

Fixed for 2 years at 4.75%

The difference between the two is about £233 per month.

It would be fine up until about 7 or 8% if rates really increased then we'd start to feel it though could still pay.

How much are you borrowing @Soapboxqueen?

365k

On that level of borrowing I’d be inclined to fix and this is what we did when our mortgage was at a similar level. Personally, I feel like rates could rise by more than 1% in next 2 years with inflation so high.

I’m so on a new tracker, but had to decide when the rates shot up, they have lowered a little now. Currently paying 3.78% but that was better than the 6% fixed at the time. The fixed all had early repayment charges.

I have no early repayment charge so I can switch. Does yours have that option.

Rates are currently forecast not to reach past 5% but who knows …

It depends on your appetite for risk and whether you could afford to overpay now.
When rates used to change a lot I didn’t fix and it worked well for me as I was free to move or take a tracker rate.
I started to fix 12 years ago when rates were low anyway as my income had gone down and I couldn’t afford the risk of higher payments.

Crystal ball territory. Maybe stick with the tracker, save everything you can from today. If rates go up use that money to pay a lump of your mortgage. Review tracker/ fixed decision at that point.

I'm a cautious person so like to apply brakes earlier than most. A good lump sum paid off your mortgage will help mitigate interest rate hikes. Good luck in your decision!

We can't really save much to make over payments as there's a lot that needs doing to the house.

I'm fairly risk avoident

Dh is happy eitherway

I do appreciate nobody can tell what the best option is.

@Soapboxqueen the way I would look at is that - if the base rate rises by 0.75% more, then you are even. That would be equivalent to the monthly £230ish difference in extra interest.

No one can say if it will or it won't but that's the base rate difference you're betting on. Obviously if it goes up by more than that you'd have been better off fixing.

Are there differences in fees with the products?

I would be inclined to go for the tracker if the fixed deal is only for 2 years. You would need to move onto a new deal after that anyway. How long are you locked into the tracker for?

The rates are predicted to rise again in a couple of weeks. It's speculated it'll be around 0.5%. So I think the difference between the tracker and fix might be eroded pretty quickly. In your case I would probably fix, unless there is some huge difference in fees, as the tracker would make me nervous. But, as always, these things are a gamble and the rates could rise much slower than people are expecting at the moment.
I was certainly blindsided by how crazy the mortgage market went thanks to Truss & Kwarteng!

I'm not sure about the fees as the mortgage advisor is sorting it out.

I don't think he's actually focused on a product yet just wants to know what we'd prefer to go for.

We could go for a longer fix but I'm not sure we wanted to tie into anything longer just now. The three year fixed were higher rates than the 2 and 5 year fixes

Our fix (1.28% - unimaginable now) ends at the end of January. We've booked a tracker at 3.75% which has no early repayment fees and plan to pay off £80k of the £142k that will be outstanding in January from savings then overpay hand over fist to clear the balance by the time my husband retires in about 18 months time (I'm already retired).

@Soapboxqueen it would be worth understanding both the product fees and the ERC. It could be one has a fee of £2k and the other no fee. It would make a difference in the comparison.

@WonderWoop that's good to know.

The mortgage advisor has gone away to find the best deals for us (we have an odd income arrangement so need the help) but I will defo ask when he comes back with some options.

I'd fix personally, for consistent payments going out each month and knowing where I am in terms of budgeting for all the other rising costs coming up like utilities and food prices etc etc. If you can afford to absorb increases on a tracker to say 8% as you suggest - can you put this into mortgage as overpayments while you can? Gives you the flexibility to cut down overpayments as other costs spiral if you need to. Check what overpayments are allowed under your mortgage policy.

That’s a relatively small difference between the tracker and the fixed, you’re only wanting a 2-year term and it’s a pretty large mortgage. I think I’d fix if I were you. It’s unlikely the base rate will go down in the next 6 months, more likely to go up. Then it could stay high for a little while. So even if it does drop a bit within 2 years, you’re not ‘overpaying’ for long and you have some certainty.