Fixed rate or Tracker?

Posted on 27 March 2011 by Neelima


We currently have a £108,000 mortgage (60% LTV) over an 18 year term with SVR at 3.5%.  My dilemma is to fix or track?  We have got a fixed deal booked for £200 at 3.79% for 3 years (mortgage to start by 30 Aug 2011) and a tracker deal at base rate +1.79% for term (no early repay charges & exit fee) with a booking fee of £99. Also we are thinking of reducing the term to 15 years.

My financial situation is that we will be having a baby soon and will be down to one income for a couple of months. So, the security of a fixed deal is ideal although taking advantage of the low tracker to save every penny is important too. We can manage if we take the tracker rate provided the base rate doesn't go beyond 2.2%. What should we do in your opinion?

Neelima,

The base rate tracker you have secured runs for the term of the mortgage whereas the fixed rate you have is only for 3 years after which time it will revert to the lenders SVR.  I do not know which Lender you have arranged this with, but I am sure that their SVR will be substantially higher than Base Rate + 1.79%.  

The question is not do we think Base Rate is going to go over 2.2% within the next 3 years?  Why?  Because if you chose the tracker and Base rate does go over 2.2% there will be a real danger of you losing your home through not being able to afford the payments and you have to ask yourself whether you are willing to take this risk?  If you are, then the tracker is the right choice, if you are not then you should choose the Fixed rate.

Peter

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