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Remortgage from a fixed deal on a life tracker?

by elenaB 14 February 2010 |

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I still have 18 more months on my fixed mortgage deal with Halifax at 5.99%. 122 000 borrowed with 21 years remaining. Early repaiment fee of current deal 2.5k. I am considering life time tracker with no early repayment fee. Should be able to get a deal on 75% or 80% LVT, lowest interest i could find so far was with ING direct at +2.39 above Bank of England rate, which woudl bring my interest down to 2.89%.
I could expect to clear my fee in the next 12 months if I switch in case the interest does not go up. Should I aim to do that or shall I wait longer for better life time tracker rates?

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Swarbs posted
The maths seem to support this. Sticking with the current deal for another 18 months would cost you around £10,960 in interest. Changing would cost you £2,500 in ERC, £695 in application fees, around £300 in legal fees and £5,290 in interest at current rates - around £8,790 in total. Although bear in mind it will take a month or so for the remortgage to go through, so you will have to pay some more on the current deal for a while.
If interest rates go up, you'll have to pay back more, but as each 1% increase would only add an additional £100 per month to your mortgage, mortgage rates would have to go up by around 1.5% in the next couple of months to make the new deal more expensive. Given that they are unlikely to rise by more than 1.5% over the next 18 months, you're unlikely to lose out from switching. Although they could well go up sharply if inflation unexpectedly picks up, so make sure you don't leave yourself too exposed.
Whilst life time tracker rates are likely to improve over the next few years, I doubt they'll be significantly better by the time your current deal runs out. And even if they are, the ING tracker doesn't have any ERCs, so you can always switch to another one at that point. Provided the ING deal beats the Halifax one over the next 18 months, it still makes sense to switch now.
Posted on 14 February 2010 | Love 0 loves Report
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MikeGG1 posted
Interest rates are not expected to start rising until later in the year and then not too quickly, so it would seem that you will probably save about £1,000 by the end of your current term.
I don't reckon that there will be much of an improvement in margin by then.
The main problem would be in the period after then. It would probably be too late to switch to a fixed rate deal by then.
Mike
Posted on 14 February 2010 | Love 0 loves Report
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elenaB posted
Thank you for your replies,
My maths seem to agree with what you've said.
Mike, I do not have long experience with mortgages or changes to interest rates, but my impression so far was that if interest rate goes up, trackers follow more closely the Bank of England interest rate? so eventually sticking to a similar interest rate?
Could you throw some more light on your last paragraph?
Elena
Posted on 14 February 2010 | Love 0 loves Report
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MikeGG1 posted
Elena
The margin that is charged over base rate tends to be based on the risk assessment which stems from your equity share. In other words the higher your equity share, the less likely that another crash would push you into negative equity. The other factor is the level of market confidence.
I reckon that market confidence will be very slow to pick up so tracker margins over base rate will remain high for some time - perhaps as much as 5 years.
My comment in the last paragraph was because once rates start to rise, fixed rate deals are likely to rise as well, but, if you took one then, you would probably still be on the fixed rate when interest rates eventually come down again.
Mike
Posted on 14 February 2010 | Love 0 loves Report

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