mart360

Been advised by our FA to consider a tracker when our fixed rate ends next month,

I understand the basic mechanics, base rate + xx set by the lender

but whats confusing me is another different rate that crops up


eg

for a 2yr tracker

Rate - 1.99%
Reverts to SVR 3.69%
Cost for comparison 3.6%

so im guessing the 1.99% is for 2 years, then it goes to 3.6?

but then they show 2.89% going to 3%

slightly confused

Mart

SpecDscooby

SVR standard variable rate (set by the lender, changes whenever the lender wants)......you wont get 1.99% for long, as soon as the base rate raises so does a tracker.....so the 3.69% SVR will go up as soon as the base rate does, that renders your cost for comparison useless. be aware most "financial" advisors are on a fee for arranging deals for the lendors.
I bet the lenders are VERY interested in getting people on a tracker, it is WIN WIN for th lender....they know exactly how much they will make from you and for exactly how long.

BTW fixed rate deals are potentially the smart money, last month 4 of 9 of the bank of england panel voted to increase interest rates; as soon as that vote is a majority they go up...will be anytime between May and August and thye WILL go up a few percent, which with a tracker....so will you mortgage mate

mart360

The 1.99 is a 2yr tracker.. does this mean that it stays at 1.99 for the 2 years, or were locked in for 2 years

Weve just come off a 10 year fixed at 5.68, so want to save some monay

Mart

mamoon2

What do you mean, "they will go up a few percent"? You think the Bank of England will increase the base rate from 0.5% to 2.5% in one jump? Can't see that! Would totally fudge up the so called recovery.

Also, if you get on a tracker with no tie in you can change if you feel the rates are going to increase by a lot

mart360

Basically thats what we were told in a nutshell, hit a tracker for 6 -12 months to see where the market is going, and then get to a fixed rate if it starts to rise.


Mart

njkmrs

Read in the paper yesterday that the Bo E have been urged not to put any rate increase through for this year at least, as the economy is still struggling and any rate rise will send us down .!!!

jonc

The current rate of the tracker is 1.99% therefore it tracks the base rate +1.49% above the base rate. So it will only be 1.99% for 2 years as long as the base rate stays at 0.5%. It it goes up to 0.75% then the tracker rate goes to 2.24% and so on. You'll be locked in for the 2 years on this mortgage before going to their SVR. Also keep in mind the fee's charged for certain products. £999 arrangement fee is pretty common for fixed rates and certain trackers which will be added to the mortgage and charged interest over the life of the mortgage, ie not just the term of the tracker. So ensure you go with a mortgage that has a low or no arrangement fee if you plan to chop and change after 2 years, otherwise you could end up adding another substantial arrangement fee to your mortgage. On the face of it 1.99% is quite good if the fees are low.

I'm in the same situation, my nationwide fixed mortgage finishes end of May. Fortunately, it then goes on to their Base Mortgage Rate tracker (guaranteed not be be more that 2% above BR, no tie-ins or overpayment limits) instead of their SVR. They're currently trying to get me off their BMR product and on to another fixed which when the term ends goes to their SRV. No thanks! I'll stick with their BMR tracker for now. Rates are pretty low and rises in the rates will also be a slow process given the state of the economy, the fall in inflation from 4.4% to 4%, the Middle East turmoil and the Japan earthquake. Fixed rates are too high in comparison, however, I expect the rates for fixed rate mortgages to go up in the coming months as base rate is expected to rise, most likely in Q3 of this year.

ScoobyDoo555

I "blinked" first and tied myself into a fixed rate for the next 4 years. One less thing to worry about if I'm honest.

EddScott

I think the "cost for comparison" takes in all the fees and costs.

After the base+1.49% ends in 2 years you'll go on to the SVR which (at the moment) is 3.69%. It doesn't mean that it will still be 3.69% in 2 years time.

Make sure you are aware of all the costs involved - and that you are happy with the FA you are using. It's not hard to find the FA fees within the mortgage Key Facts Document.

You'll be locked in for 2 years although you get probably get out with a fee. After the 2 years you go looking for the best rate.

Ours is a lifetime rate of .49% above base.

jonc

0.49% + Base Rate!! I guess that was taken out some time ago, before the Crunch?

CrisPDuk

Blimey, and I thought we did well to get our BR + 0.65%

EddScott

It's about 8 years old now. It was 4.99% fixed and I was worrying because it was going to end up higher as base rate was like 6 or something at the time. Wasn't used to it going up.

When I looked into it and found it was .49 lifetime I thought it could be worse and stuck too it.

It's not all great news as its interest only I'm using my ISA allowance to build up the capital payments. Means I can't earmark my ISA for other things and I'm not a natural saver and not really anywhere near on target If I'd been able to max my ISA allowances over the term of the mortgage I could have paid it all by now.

Its "only" £75K on £150K which isn't too bad but without paying off big chunks it's limited us if we want to move. We've also quite a chunk out to pay for the wifes hair salon.

SpecDscooby

the 1.99% will mean 1.99% above the base rate; so if the base rate is 4% you pay 5.99% (4% BOE base rate + the 1.99% of your tacker). Thats why i suggest a long term (5yr) fixed deal at around 4.6%.

What i meant when i said the base rate will go up a few percent is "in time" it will, at probably around 0.5% increase. Inflations target is 2%....when its nears 2% the rises will slow.

In the last recession the interest rates made it to 17%, so your 1.99% tracke will cost you 18.99% INTEREST!...to take this worry away, fix your deal, and pay 4.6(ISH)% no matter what interest rates do....same for the 0.49% tracker, great deal now....if interet rates get up around 5-6-7%they were for YEARS will it be a great deal then, or would you prefere a fixed at 4.6% ish? hard to say/...

N.b

More people fixed their deals last month than in the last 10 years!....says it all?....no one wants to get caught out paying potentially large interest rates.

Hope it helps mate, and good luck!

SpecDscooby

http://www.houseweb.co.uk/house/market/irfig.html

Here is what the inerest rates have looked like for seeral years. If anyones interested!

mart360

Weve been on 5.68% for the past 10 years,

Whilst the repayments at this stage are interest geared, we have payed a shed load of interest whilst the base rate was at a paltry .5%

We certainly wouldnt want to lock ourselves into another 10yr rate, and given that to get the base rate to 5.68% would entail some large step jumps, i dont think it would happen..

If the BOE rasied rates that rapidy, the housing market would collapse.

Lets be honest, how many people do you know that are overpaying tracker mortgages at this time, to take care of the low base rate?

Most are enjoying the extra cash , should the rate go up that much or more in one or two jumps, I suspect there would be a glut of repossesions from people who couldnt make the increases.

Not sure at the mo... we like the security of fixed rates, but like the look of lower payments for some time

desicions desicions

Mart

jonc

It will of course depend entirely on your personal financial situation. If you have a large mortgage that is many multiples of your salary, then you should definitely consider a fixed rate to give you stability and shield you from any upward fluctuations in the base rate. This will allow time for you to build up your income sufficiently to cover the increased rate when the fixed term ends.

If, however, you have a "modest" mortgage where repayments won't eat into your salary excessively, then you can take advantage of the low rates now and hopefully the rest of your income reserve can take care of any fluctuations.

The way I see it rate rises will be a slow process so a 2 yr fixed rate, for example, isn't worth the application fee which is why I'm currently taking advantage of the low rates by making overpayments as much as my income will allow. Then when I move on the the lower rate BMR product further increase my overpayments which will really eat into the mortgage. This will take years off the term of the mortgage and allow me to repay the mortgage off early saving thousands in interest or build up security to allow payment holidays if I get into financial difficulties. The overpayments can really count when the rates are low as it means more of your money is paying off the capital rather than the interest. So if rates increase dramatically over say the next 10 years, your mortgage will hopefully be a whole lot smaller.

ditchmyster

iTrader: (7)

Not sure what the current rate is but there is no way that its going to 7% in the next year let alone 17% and probably not in the next 3/4yrs as if it did there would be mass riots in the streets.

The government would fall.

Along with all the other increases ie fuel and food people would just not be able to afford to pay their mortgages.

let alone the burden on the welfare services to re-home all the families made homeless.

looking at the historic figures for interest rates you have to go back 10yrs to see rates consistantly above 5% and almost 22yrs for 10% .
Iv'e saved £25,000 in payments over the last 3/4yrs since going tracker and i think there are still savings to be made in the next 2years.

Then we will be heading for an election and no one will want to rock the boat prior to that so happy tracker days for a while yet me thinks.

zip106

Shouldn't worry about it.

December 2012 is only around the corner...

SpecDscooby

All good points, for me i believe a 5 yr fixed is a reasonable bet, i have booked my deal at 4.39% for that period which for me is "safe", i will add for the last 2yrs i have been paying 2.5%, and have knocked a nice lot off my borrowing. Just had a new child so thinking 5yrs stability sounds good, and since it does'nt equate to even a 3rd of my income (1 income household) it all adds up nicely for the time being, with a view that when my mrs start working oart time, i will overpay to correspond......

Lot of it as said is down to individual status, and mindset at the time....for the record i can see the inerest rate going up to around 2% by christmas....not the end of the world though is it....2%

bigredrob

were the tories in last time the interest rates were high?

SpecDscooby

Maggie was in...

bigredrob

Does this mean those with" money", want higher interest rates, whist those" without money" have to pay more?

EddScott

What makes you think interest rates will get to 2% by christmas?

I think inflation will drop through the floor next 12 to 18 months and the things driving inflation right now won't be affected by any rate rise. All IMHO of course

bigredrob

I have heard that the long term end is reduce the price of housing, ie to return to 3X your income + 15% for the price of your house. So do wages go up, or prices come down?

SpecDscooby

Same as really IMO......i have been looking into this subject for around 3 months as i have been variable and enjoying the low rate for a couple of years. Certainly most analysts i have seen suggest a rate rise as early as May or as late as August, but as you rightly say if inflation falls the rates may remain stable; just at the moment i cant overlook the bank of england goal....which is 2% inflation, and they may have to act, soon.

Aslo worth mentioning inflation at the moment is a bit bullsh1t....i'll explain....the Bank of England is buying up private sector shares right now using newly printed bank notes; so basically pumping cash into the economy while the people are'nt. This action is NOT sustainable and highly volatile. While we see inflation drop slightly, much of this is the BOE buying stuff for the "treasury", that it does'nt really need. When they stop this inflation may rise once again...., if they keep doing it in the long term we may as well move to Zimbabwe:0....it wont get that bad of courseIMO


Anyways check the Bank of England web site, i do a lot and find it very interesting at the moment, they even print the minutes from the last time the BOE panel met to decide interest rates. Next potential rate rise is the 5th of May BTW.