Comments on: Broker has advised a three year fixed mortgage - is this not a good idea at this stage of recession?

By: retox

retox — Mon, 08 Jun 2009 05:44:29 +0000

Hi again. You don’t say what rate you are currently paying. I am in the same position - my fixed rate of 5.14% is going to end in December when I will go back on the standard variable rate. My advice to you is to sit and wait if you can afford to for a couple of months to see what the mortgage market does. The bank of england base rate has now moved for some time and although there are no guarantees, it is unlikely to go up as this would just cause more instability in the house market. I plan to wait to see what happens in the next six months. Yes, you will pay more on your mortgage for a short while but you can keep a close eye on rates to see what your lender can offer you (or another lender if you want to remortgage) and are ready to grab a good rate when it appears. Fixed rates are still relatively high and three years is an awful long time to be stuck with a higher rate. Remember that once the fixed the only way out of the mortgage is to pay the redemption penalty which are pretty hefty. If you are thinking of remortgaging to another lender then check the fees out - it can be expensive now and you need to calculate what you are saving in repayments over the fixed period to your upfront costs.

Tracker rates are where you are given a discount from the Bank of England base rate (BBR). So for example, the lender may offer you a tracker rate of 1.25% + BBR - if the BBR was 5%, you would pay an interest rate of 6.25%. The downside to this is that if the BBR increases, so does the interest rate that you pay. If the BBR increased to 6% for example, you would then pay 7.25%. Personally, I prefer to fix for two years to stabilise your payments and help with budgeting.

I hope this helps - I am now off for a cuppa and a ciggie as your questions today have worn me out! LOL

By: bluecow

bluecow — Fri, 05 Jun 2009 12:53:53 +0000

forget the previous answers,

it all depends on what’s right for you at that given time when you take out the mortgage. A fixed rate mortgage means that the ‘interest rate’ is Fixed for a pre-determined period, in your case, 3 years. (it doesn’t mean you have to repay the mortgage within 3 yrs) In this period the repayments will not go up, should the B of E decide to hike interest rates, and vice versa. This type of mortgage is best suited to those that want to ‘budget’ precisley. After the 3 year ‘Fixed’ period, the interest rate reverts back to the lenders SVR (standard variable rate), which is usually quite high, upto 7-8%. So make sure you make a note when your mortgage fixed period ends.

As for ‘Tracker’ mortgages, the interest rate ‘Tracks’ the Bof E rate, hence the name, Tracker. These are suitable for those people who want to take advantage of low B of E rates, and thus pay less interest, however, the game can go the opposite way too. You should only consider this option if you can budget an ‘Excess’ to your normal mortgage repayments, should interest rates head North, i.e. go up.

personally its hard to comment on your situation without knowing about your financial circumstances. But if your Broker is worth his salt, then i’m sure he has given the right advice.

p.s. remember to ask about any early repayment penalties and arrangement fees as well as brokerage fees.

By: Juan B

Juan B — Tue, 02 Jun 2009 01:37:41 +0000

I wouldn’t take it. At least in the US, those types of mortgages are what got the mortgage crisis tumbling. What if rates go up significantly after your 3 years?

By: AB

AB — Mon, 01 Jun 2009 06:14:14 +0000

A three year fixed mortgage means that you are going to have to pay off the mortgage in 3 years or refinance. With the state of the economy, that is a horrible idea. More than likely, rates will start going up by the time 3 years rolls around. If you really want to be safe, have a 15 or 30 year fixed mortgage.