2 yr tracker or 2 yr fixed? Remortgage

[snowsjoke]

We need to remortgage but are not sure whether to go for a 2 yr tracker (4% £1012 per month) or 2 yr fixed, (Santander 3.76% £992 per month). Would prefer to stay with Santander. Both have a product fee. On a property worth £475k over 14 years. Mortgage would be for 130k.

Thinking the tracker will give more flexibility if interest rates reduce?

Can you afford the tracker if rates suddenly went back up? Given how quickly one budget sent rates soring, you need to be prepared for the worst.

Thanks, yes that wouldn’t be a problem but would be irritating. It seems that you can convert to a fixed at any time with the tracker, overpay (which you can also do with the fixed up to 10%) so it has more flexibility? From what I’ve read, it seems like there is potential for a further rate drop this spring. We have until May to decide.

The monthly payment difference between the two is only £20 so it makes it hard to decide.

If you convert from tracker to fixed you will pay another product fee.

Is there a reason you only want a 2 year deal?

To fix or not is always a tricky balance.

It comes down to the relief if you fix but the rate goes up Vs the disappointment if the rate drops and you could be paying less.

I would have a play with the numbers, how much would the rate have to drop for you to be annoyed that you fixed and lost the option of the cheaper rates.

You can also look at the longer fixes as these can sometimes give you a bit of an idea about what the banks suspect might happen to rates. For Santander the rates for the 2, 3 and 5 year fixes are within 0.1% of one another. Based on current knowledge I would say they weren't expecting collosal rate rises as they will be out of pocket if the rates suddenly jumped up to 5-7% that said, the things that cause rates to suddenly jump up are usually unexpected.

We have always gone with 5 year fixes as we like the stability and knowing what we are paying. I don't know what Santander are like but we are with first direct and our mortgage came up for renewal a week before the Liz truss budget and we were able to renew for the lower rate we were quoted before the budget as we already had an appointment booked in to arrange the mortgage. In that appointment we were given the choice of sticking with that rate of 3.8% or getting the rate of the day which was double. If it has dropped in that time we would have been able to accept the lower rate. I would ask what would happen if the rate dropped between accepting the fix deal and the fix deal starting.

It's a tricky one, I would lean towards fixed as it's a short period, whilst it's fairly uncertain out there.

From what I've seen and heard there's lots of deals around, so definetely shopping around 👍🏻

The trend on mortgage rates is downwards at the moment, but we live in a fast changing world, as recent years have shown us.

Some lenders will let you do some of the mortgage fixed and some variable, so I might consider going half and half if rising interest rates would cause you a headache. That way you get some upside if rates fall, as they should, but have a measure of protection if the markets react adversely to world events.

Just a thought.

The spring drop is built into the fixed price - it’s while it’s lower than the tracker as it factors in anticipated rate changes. Your therefore only likely to benefit from the tracker if there’s a drop of more than 0.25% or multiple drops.

Given it’s a short term and the fix is lower, I’d likely go with the fix - but it comes down to your personal risk appetite.

Thanks for all of the advice. Yes, also thinking about a 5 year fix too but hoping to be able to pay the mortgage off within the 5 year period (although not in the next 2-3 years).

I know you said you would prefer to stay with Santander but if you are thinking of overpaying, look at the Woolwich and check their terms and conditions.

Many of their products allow smaller overpayments without it affecting your 10% annual limit. So if I overpay by no more than three times my usual monthly payment, it doesn't count towards that 10%. It's extremely helpful in chipping it down bit by bit if that's relevant to you?

I keep chucking regular £500s at it without penalty and still with the option to overpay by 10% each year.