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Old 11-11-2010, 17:23   #1
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Interest rate?

I really can't decide what to do - get a tracker mortgage for 2 years, or get a fixed, obviously the fixed is a little more per month, but no one knows what will happen? - what are peoples views/recommendations?.

thx in advance.
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Old 11-11-2010, 18:39   #2
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Mortgages are priced based on risk.

Experts at banks guess what the chances of rates going up or down are, and then price fixed rates slightly higher than their estimate in the hope of making a profit (actually they hedge most of the risk by buying futures to ensure they make a profit, but that's over complicating things).

In the long run, a fixed rate will on average be worse value than a tracker because banks are taking a portion of risk away from you and charging you for it.

Saying which is better over any specific period is more or less a coin toss. You should think of it like a casino where you can win any given bet, but in the long run the house always has an edge.

If you have a mortgage over 25 years and make a tracker/fixed bet every 3 years, the chances are that you'll be better off with fixed rates over the whole period are very slight.

The only really good reason for getting a fixed rate is if you think you might lose your home if rates go up. In this instance, the fix is removing a large additional risk that isn't priced into the transaction by the bank, so the fixed rate becomes a good deal.

To conclude: only go for a fixed rate if you're extremely worried that you might not be able to make your repayments.
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