Posted on 10 April 2010 by Ed Davys
We have just had a mortgage agreed by a lender offering a 5 year capped tracker, at 2.49% over the base rate, and capped at 5.99%. It was a toss up between this and a 5 year fixed at 4.5%. We took advice that the product did have an element of 'buy now pay later' attached to it, but the deal was still attractive given the risk. we are now reading reports and are wondering if we have done the right thing! We have no dependants and could weather any increase but don't want to end up paying over the odds. Have we tied in for too long??
The answer to your question really depends on what you think interest rates will do in the future and balancing that against the risks you are prepared to take against any future rises in your mortgage payments.
The product you have chosen has a small margin above the market leading term tracker rates, but for this you have the security of knowing that for 5 years your rate will never exceed 5.99%. However, it is also considerably lower than any existing 5 year Fixed rates, including the 4.50% deal you could have chosen and Bank Base rate will have to rise by over 2% before you start paying more than this. The alternative would have been to take a term tracker and then consider switching to a Fixed rate at some point in the future. If rates do increase, the Fixed rates you would then be looking at are likely to be at or above 5.99%.
I suggest that you speak to an independent mortgage adviser who can complete a full 'factfind' on your current circumstances and attitudes towards risk. Only once this has been done, will you know whether or not the product you have chosen is the right one for you.
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.