Re: Fixed or Tracker Mortgage.

I have always tracked as I have been too "mean" to accept the up front fees usually demanded to "fix".

Also I prefer a 25 year term on track (without early exit fees) rather than the much shorter fix terms (often with huge early exit fees).

But they track an unknown variable.

That sint necessarily a bad thing and selecting a tracker doesnt necessarily remove the benefits of re-mortgage.

That depends on what rates you fix at.

Yep.

Yep

Nope. There are loads of 'trackers' out there with +ve margins but there are others with -ve margins. 'Trackers' per se are not good things, it is the rate you pay that matters.

I am not arguing in favour of fixed rates v trackers, merely asserting that you dont 'know where you are' with trackers, you just know that when something you cant control changes, so does your mortgage payment.

I got the impression that 'normal' mortgages now charged fees.

I haven't bought one for some time now, so I cant be sure.

tim

I have to pay a 50 fee to "redeem" my mortgage before my 25 years are up, but there were certainly no set up fees, apart from a 25 chaps fee (a bit of a ripoff I know!) to advance the funds.

Not really. Retail fixed rates are based on long dated swap rates, which price in market expectations of future moves in short term rates.

There are lower rates with fees or higher rates without, depending on how much you are borrowing it can work out cheaper on 'true cost' (taking into account the interest and fees) to take a fee free deal.

That model worked for you, but I am wary of people taking fixed rates because they are stretched and need the security. If their budget is streched they should maybe think if they can afford the mortgage in the first place.

I would certainly be suspicious of tracker which tracked the banks own base rate rather than the BoE.

In message , snipped-for-privacy@yahoo.co.uk writes

Hmmm,

Clearing Banks' 'Base Rate' IS the BoE Rate. BoE Base rate is an unknown variable.

As you seem to agree, many 'trackers' track the mortgage lenders own mortgage base rate. This is also an unknown variable.

You seem to agree that the thing to worry about trackers is what they track.

So, perhaps you can see why I dont see how you think 'you know where you are' with trackers, rather than with Fixed Rates.

In message , John Boyle writes

Just to add to the uncertainty, AIUI the clearing banks have traditionally used the same base rate as the BoE Base Rate, but that relationship isn't set in stone is it?

With what has happened to London inter-bank lending rates recently, surely it is a concern that clearing bank base rates are under pressure to increase. OTOH, the BoE might be compelled to reduce its own base rate much as other Central Banks seem to be doing, in an attempt to mitigate a looming recession.

Or have I misunderstood?

In message , Dave N writes

No.

yes, 3month LIBOR, for example, has been 100 basis points above Base Rare recently when theoretically the two should be about the same.

I think the reason for interest rate reductions has been more to improve liquidity in the market. I know that a period of illiquidity could lead to recession, but the driver of the rate changes is liquidity.

I dont think so. It shows that base rates are even more of an uncertainty.

Well I think it is a known. What is not known is what it will be in the future.

But if you take a fixed rate mortgage you are effectively gambling that you do know what BoE will be in the future.

So, perverse as it sounds, I take the view that you know here you are with trackers... (assuming they track BoE base rate).

No. You are merely gambling as to which will work out best. You said 'you know where you are with trackers'. I am merely pointing out that you dont know where you are with trackers. but you DO know where you are with fixed rates. Whether the fixed rate is cheaper or more expensive isnt the point being made.

Pah. It all depends on what you mean by "where".

But you don't really know until the fixed rate is over. Only then do you know if your gamble has paid off because you know what happened to interest rates and you also know what new fixed rate deals are available (and you should know how much it will cost you to switch).

Tracking BoEBR by a fair margin means you know you are getting to fair deal regardlesss of movements in BoEBR. Of course you might find there are gamblers in fixed rate deals who did better than you, but you could equally find many that did not. Coming out 'even-stevens' over the long term would not justify the hassle of fixed rate deals

In message , snipped-for-privacy@yahoo.co.uk writes

Thats where you misunderstand. You dont 'take a gamble' with a fixed rate.

No, you dont take a fixed rate to gamble on getting the cheapest deal, you do it so as to be sure of your payments.

Irrelevant. You could just switch to variable.

That risk can apply to any switch which may take place, i.e. when your tracker suddenly looks expensive when compared to current offers.

It is not misunderstanding. Fixed rate deal is a more complex financial instrument for those who think they can call interest rates better than the market maker.

Ever notice how 20 year fixes are almost unheard of in the UK market..? Gambling on short term interest rates is one thing, but people are much less confident about calling interest rates in the longer term.

I think the million + people currently coming off fixed rate deals may take a different view..!

Yes.. some people can see the error of their ways, especially if they found they gambled in the wrong direction.

Flexible mortgage with lifetime tracking BoEBR by a reasonable margin

- I think you are never going to get much better than that. The only way you can get better is by gambling you can buck the market (over the lifetime of the mortgage).

Of course it could be that over the lifetime of the mortgage you can come out on top by taking this gamble. But you will never know until the end of the mortgage. That is why I say that you really want to know where you are, get a good tracker..

wrote

OK, if you really will know where you are with a good tracker, please tell us this ... what interest rate will you be paying on it, the year after next (2009)?

What? a fixed rate is a 'more complex financial instrument'? They came before variable rates!

eh? But fixed rates *are* called by a market maker, whereas BoEBR trackers dont have a 'market maker' in the sense I think you mean.

No demand and heavy penalties for moving, but GB wants to introduce them I hear (which would be a bad move).

Yes thats right, thats because they prefer the risk of the shorter term, whether that be fixed or variable. Plus, of course they may want to move house etc.,

err, no. It depends on what rate they fixed and why they fixed it. You are now introducing the concept of whether fixed rates are better than variable (which is a separate argument). I am (still) merely argiuing the point of whether 'you know where you are' with a variable mortgage.

Glad you accept my point.

I agree. It is an unknown until the very end.

Now you have lost me again.