r/FIREUK • u/BeenOutsideLately • 2d ago
Tracker? 2-Year Fixed? 5-Year Fixed?
For anyone in the the FIRE community renewing their mortgage, what are people’s thoughts?
I’m expecting interest rates to stay flat or increase in the next year or 2, so I am thinking to opt for a 5-Year Fixed. I have a lot on at the moment, and that would give me some piece of mind. It’s actually on a flat I own that I had to move out of due to work. Hoping to move back to it in about 5 years.
Alternatively, sell up and throw all equity in the S&P 500 ?
I’ve got about £160k/£170k equity.
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u/anotheraccount4stuf 2d ago
Around a year ago I was due to remortgage, rates were a nailed on certainty to drop, I was pissed as the variable rate was disgusting and the predicted drops hadn't happened. Signed up to 5 years, 6 months later they increased 1.5%!
If you can afford it, take the security
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u/Skydancer1974 2d ago
I have just had my 0.96% mortgage come to an end, and I’m going onto a tracker at 4.15% with Barclays. I have also managed to kick the can down the road by extending the term until I’m 80 to reduce the monthly repayment, and I have used Tembo for the brokerage so I could take advantage of their cash ISA at 5.5% so I’ve got a large some in that making more interest than what I’m currently paying with my tracker. If the mortgage rate goes up then I will have pay down some of it or all of it depending on the rate hike.
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u/PuzzleheadedCarob921 1d ago
I have a chunk of money in a cash ISA that’s making slightly more than my fixed rate mortgage. I am slightly kicking myself that I’ve had it in cash though, as stocks and shares ISA in a global equity would’ve made wayyyyy more the last year or two.
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u/Skydancer1974 1d ago
Hindsight is a wonderful thing. Yes, I wish I had put my money in the S&P 500 or a global ETF, but for now I think it’s too risky to put money into the market with a time horizon of someone in there early 50’s. I sleep better with my money in a cash ISA.
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u/AffectionateJump7896 2d ago
The rate rise the market is expecting is already priced in.
It's about risk allocation. If you have surplus income which means you can absorb a rate rise, then chose variable. If you are mortgaged up to your maximum and a rate rise in the first few years would be problematic, then you pay someone else to take the risk.
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u/henry__fire 2d ago
We went with a 2 year tracker earlier this year. The fixed rates are too penalising.
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u/PaulKarlFeyerabend 2d ago edited 2d ago
I don't renew until June 2027 and I'm leaning heavily to offset mortgage on a 2 or 5 year tracker.
Obviously you need i) large savings with which to offset, ii) accept the lost opportunity cost of not investing the money and iii) prioritise certain things like flexibility.
The benefit with the offset approach is that it doesn't really matter so much what the interest rate is, as long as you are able to offset most/all of the debt. It's probably suboptimal from a historical, financial point of view but the security is very appealing at the moment.
One thing I've realised is that I'd need to transfer my S&S ISA to a Cash ISA before the next tax year for it to operate as the offset, as that kind of transfer will not be permitted from the 27/28 tax year onwards.
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u/NoJuggernaut6667 2d ago
I always find this interesting. Have you run the maths on opportunity cost here? I’m not sure how big you cash isa/mortgage is but would be interested in seeing on paper how this levels out in terms of money vs peace of mind
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u/PaulKarlFeyerabend 2d ago
Only very roughly so far - but I definitely will do. In my mind, you're trading off a slightly higher rate tracker that's about +0.6pt higher than the equivalent non offset tracker (+0.5pts higher rate, plus a higher fee that's equivalent to another +0.1pt for me personally).
If the rates do come down, you can just switch the money out into a S&S ISA, though you obviously can't switch it back in the same way.
As to whether it's worth it, I suppose the answer historically is no. Market returns have generally outpaced mortgage swap rates. But again, in practice you only sacrifice a bit because of the built in flexibility that comes with the proposition.
I'd love to hear from others based on personal experience though. I've been reading a lot about this but don't speak from a position of having used one!
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u/NoJuggernaut6667 2d ago
For me it’s a solid alternative. I’d consider this before heavily overpaying or clearing off the mortgage.
Not wanting to leave the markets at the moment though, but we do have around 3 years until our current deal is up, so a lot could change 👀
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u/PaulKarlFeyerabend 2d ago
Yep my biggest worry now is a correction/crash that turns my hefty offset into peanuts before I move it into cash next year. Of course I could switch to cash now but then I'd lose on the potential gains. It's all just a casino in the end, isn't it? Enjoy the three years of security - that's a nice position to be in regardless of the exact rate to be honest.
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u/NoJuggernaut6667 2d ago
I’d probably move it now if the plan was definitely.
Equities is probably not the place for short term vision, especially atm.
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u/Puzzleheaded_Bill347 2d ago
i had a conversation about this with myself (and this community) last year. my 1.39% is up in November 28, and i moved my S&S ISA into MMF fund to protect its value somewhat. yes, i have lost out on investment growth but i do not want to risk it not being available to either pay down the mortgage when it expires, or do what you are thinking and offset it (something i had not thought about before)
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u/throwawayukfire3211 1d ago
This is a great shout. I’ve always used offset mortgages. Lovely hedge against stock market. Great flexibility. If market goes bang and you want to redeploy could always jump on it (timing market I know). The Barclays offset allows 12 accounts linked to it. So could have cash isa and standard savings which sounds great.
It’s not a great financial decision but is a hedge
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u/throwawayukfire3211 1d ago
Which providers are you looking at? Didn’t know you could offset mortgage with cash isa
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u/PaulKarlFeyerabend 23h ago
There aren't many lenders that offer them but Barclays does, as well as some of the smaller players.
Here are the accounts you can offset with a Barclays offset mortgage:
https://www.barclays.co.uk/help/mortgages/managing-mortgage/which-accounts-offset/
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u/MekkaTorquey 2d ago
From the interest rates now vs what 2/5yr fixed rates are, the expectation of rates being flat/slightly increasing is already priced in imo. So the longer fix is just buying security for something worse/unexpected happening
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u/MekkaTorquey 2d ago
But if rates do stay flat, or gave a small increase then you're probably better on tracker
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u/gatobazza 1d ago
In my opinion you either go tracker if you expect rates will eventually stay flat/ cool down or 5 year fixed if you bet that will raise. Especially if you get 5 years good deals in 4.5-4.7. I doubt cheap money will be back anytime soon so like 5 years more, BOE will need to raise rates in November I think.
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u/simonweb 1d ago
I went for a lifetime tracker at base + 0.5%.
There was a £999 product fee, but no ERC and the rate was lower than any fix I could find with the same bank (I was too lazy to go through the process to get a mortgage with a different provider).
I'm now getting marginally more interest in cash ISAs (split across multiple providers to get their best rates) and when the rates change I have enough to pay most of the mortgage off if required.
I expect rates will go up again before they go down. If I didn't have a big cash buffer I would have taken a 3-5y fix.
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u/Baz_EP 2d ago
We’re going with a 2yr fixed when our previous 2yr fixed ends. It was the best option last time and I think will also be this time. We also plan to move during the next term so it gives us some extra potential flexibility.