Fixed vs Tracker

Posted on 8 January 2012 by Rob

My 2 year fix is coming to the end @ 3.79% with Nationwide.

They have offered me a new 3 year fix @ 3.49% or 5 year fix @ 3.79% with no fees apart from ERC of 5%. or they have a Tracker @ 2.59% above base for 3 years @ present making it 3.09%

Which deal would you choose?


The answer to this will depend on when you first obtained your current mortgage with Nationwide?

If you completed prior to 30 April 2009 the your mortgage will revert to a Standard Variable rate that is linked to the Bank of England Base Rate + 0.50%, giving a current rate of 2.50%.  If your completed after this date, there is no link to Base rate and the current Standard Mortgage Rate is 3.99%.  A current rate of 2.50% with a set link to movements in the base rate would be very tempting regardless of how competitive the Fixed rates on offer were.

You asked what I would do personally and the answer is I would take the 5 year Fixed rate because I want the security of knowing what my outgoings will be and I think that 3.79% is a margin above the cheapest tracker rates worth paying for.  This does not mean that it is right for you.

The current thinking in the marketplace is that the Base Rate will not rise this year and probably not next year either.  If that is the case, then you may be prepared to take the risk of taking the variable rate and hopefully paying less than 3.79% for at least the first 2 years.  Considering the base rate would have to rise more than 70 basis points before you start paying more than 3.79% it may be even longer, unfortunately no one has a crystal ball.

I however you do not want to take the risk of payments going up, then you should be considering a Fixed rate mortgage.  Nationwide's 3.79% is one of the best 5 year Fixed rates currently available at 75% LTV whereas the 3 year Fix can be bettered elsewhere.  You will definitely pay more per month than if you took the Tracker rate, but you will have the security of knowing that your payments will not increase.

I recommend that you speak to an independent mortgage adviser if you are at all unsure about which is best for you.  The Nationwide branch mortgage adviser will be able to advise you about the pros and cons of Fixed and Tracker mortgages, but will not be able to advise you on the alternative products available from other lenders.


Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.

We recommend you seek professional advice with regard to any of these topics where appropriate.

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