Fixed or Tracker?

[Arran]

Hi,

I have been given 2 options by my mortgage adviser, but I wanted to run it by all of you to see if you agree with his recommendation...

Both with Halifax...

Fixed Details:
2 Year Fixed @ 4.7%
Setup cost = £499

Tracker Details:
Not sure on duration.. but currently @ 3.7%
Setup cost = £999
£250 Cashback
Valuation fee's reimbursed...

He has recommended the the Tracker deal, but obviously I am concerned that interest rates could rise rapidly this year... Is that likely to happen?

Also a friend says the Cashback and Valuation fee reimbursement may only apply if I have one of Halifax's special current accounts whereby I'd probably spend £250 a year to have it...

I'm not even a Halifax customer currently, I do all my banking with Barclays...

Also I cannot find any information about this Tracker one with all the perks on the Halifax site...

So which would you suggest?

Thanks,
Arran

[brian]

Interest rates are expected to go up later this year, and tracker rates usually reflect banks expectations of how interest rates will rise.

However, it's worth bearing in mind that inflation is in danger of rising significantly through the short and medium term even according to the conservative Bank of England.

Either way, it remains an option that can be confusing because obviously the aim is to get the best deal - however, what I'd recommend is you consider which one you would be most comfortable with.

Personally, I'm on a fixed because it means I'm not going to encounter any nasty surprises in rises further down the road - it cost a little more, but I figure I'm buying peace of mind through stability with that.

Either way, it's a personal preference.

[Life-Insurance-Broker]

According to Santander fixed rate mortgages are more popular at the moment. Just as Brian said base rates are expected to rise.

[IFA]

Hi Arran,

It's impossible to give firm advice on the basis of the brief details you've provided and as Brian has said a lot of the decision is more about personal preference than the opinion of others, but thinking about the following may help you to decide.....you can PM me if you want to discuss more at any time.

Trackers are currently a long way above the bank base rate level (3.7% is 3.2% above base) which could be a major worry if the base rate rises again. 2 years ago it was common for trackers to be around 0.25% - 1% above the base rate, and these were much better value for money.

Between July 2007 and March 2009 the base rate dropped from 5.75% to 0.5%, so it logically follows that if it can fall this quickly, it could also rise as quickly. That's not to say that it is likely to revert to 5.75% over the next 2 years, but theoretically it could, and that would leave you paying 8.95% interest on your tracker deal.

In November 2008 there was a 1.5% cut in the base rate in a single month. Again the reverse is not necessarily going to happen when rates start to rise, but if it did the tracker on offer would in a single month instantly become more expensive than the fixed rate that you could have had instead.

The real question is: Are you prepared to take a gamble with your hard earned cash and the security of being able to sustain the cost of home ownership?

If the answer is "No" then a fixed rate is the only way to avoid the prospect of future rises in monthly mortgage repayments during the term of the fixed period.

The rates you have been quoted may not be on the Halifax site as lenders often offer different deals through brokers than those available direct.

Best of luck