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scottbeard

5 Year Fix Or 25 Year Tracker?

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5 year fix at 3.7% then SVR (Nationwide), or 25 year tracker at Base Rate + 2.1% (HSBC)?

I guess it depends whether 2011-2016 will be like the Great Depression (rates held steady at a record low for 5 years from 1933-38) or the 1970s/90s (rates shoot up to double figures).

Personally I think rates will stay low for a while, and i don't like the idea of defaulting to a SVR at the whim of the lender or being forced to remortgage, so i'm more tempted by the tracker.

Any thoughts?

(I know many of you wouldn't buy a house right now anyway, but of course all our circumstances are different and economics is not the only factor.)

Edit: Tracker also has no early repayment charge or charges for overpayments, whereas fix does.

Edited by scottbeard

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2.1% plus I feel is a little high, but if that's all which is available..

You can get lower trackers, but they all the ones i've found expire after 2-3 years and revert to SVR.

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5 year fix at 3.7% then SVR (Nationwide), or 25 year tracker at Base Rate + 2.1% (HSBC)?

I guess it depends whether 2011-2016 will be like the Great Depression (rates held steady at a record low for 5 years from 1933-38) or the 1970s/90s (rates shoot up to double figures).

Personally I think rates will stay low for a while, and i don't like the idea of defaulting to a SVR at the whim of the lender or being forced to remortgage, so i'm more tempted by the tracker.

Any thoughts?

(I know many of you wouldn't buy a house right now anyway, but of course all our circumstances are different and economics is not the only factor.)

Edit: Tracker also has no early repayment charge or charges for overpayments, whereas fix does.

2.1% over base is quite a premium to be paying. Bear in mind that interest rates are now (and have been for a couple of years) at record lows and essentially as low as they can go so even though what you pay looks affordable now it won't look so great in the future. Depending on where you live (e.g. Southern England), local house prices may not be so far off all time highs either so you are borrowing more capital than is ideal at a time when the interest you pay on it is only realistically going to go higher and the asset you bought may well go down in price.

Over 25 years you will almost certainly see rates go much higher. You can expect base rates of at least 6% for a protracted amount of time at some stage over that quarter-century time period. If inflation really gets out of control as I suspect it will, double digit rates are a real possibility at some stage and don't count on your salary to keep pace with inflation.

Edited by Sour Mash

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Nationwide BMR is +2% (for all mortgages arranged before April 2009).

Any arranged after would revert to SVR (3.99%)

Arranging another Tracker or Fix would no longer qualify us for the BMR once the deal runs out.

No wonder they're desperately trying to get us to re-fix asap. Think we'll stick to the BMR for now.

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What's your ability to make overpayments like? If you choose the tracker, how high can base rates go before you start to get uncomfortable, and how high before you are in pain. (Making reasonable/middle case assumptions like you keep your job, but don't get any salary increases etc.)

The difficulty I have with either is that I think rates will shoot up rapidly, but in about 4 years time... in which case the 5 year fix totally screws you, but the tracker doesn't protect you....

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Fixed rate and lifetime tracker deals are both cons, since they are both just excuses for slapping an extra 1-2% on the margin.

Fixed rates are a con because they are never offered except when the lenders have a very good inside line on future interest rate not rising in the medium term.

Lifetime trackers are a con because as the base rate rises (possible in the long term) margins for new deals tend to fall. Its basically expoiting the fact that 2-3% + BR looks "cheap" because of todays absurdly low rates.

Go for the lowest short term tracker you can find. At the end of the "introductory" rate, just remotgage. By frequently remortgaging to the best deal for the day you will almost always beat any single long term deal - the system is designed that way in order to make the lenders more money.

EDIT: Well OK the ONLY reason to choose a long term deal is if you think prices might crash leaving you unable to remortgage to a decent deal.

Edited by goldbug9999

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What's your ability to make overpayments like? If you choose the tracker, how high can base rates go before you start to get uncomfortable, and how high before you are in pain. (Making reasonable/middle case assumptions like you keep your job, but don't get any salary increases etc.)

The difficulty I have with either is that I think rates will shoot up rapidly, but in about 4 years time... in which case the 5 year fix totally screws you, but the tracker doesn't protect you....

As far as the lender is concerned the IDEAL fixed rate is one that expires just before rates trend sharlpy upwards - do you think that is by accident or design ??.

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  • 295 Brexit, House prices and Summer 2020

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      • down 5% +
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