10yr Fixed Rate Mortage or risk shorter terms?
- Thread starter stoofa
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Well firstly you don't have a crystal ball that will tell you where interest rates are going to go. It is a "gamble" either way.
To emphasise this it might be worth comparing the figures in terms of the amount you'll actually be paying over those 10 years rather than just eyeballing the rates. Take a look at the amounts you'll pay if interest rates do nothing or if they just move up by say 0.25 or 0.5 etc.. or more at various points if on say a lifetime tracker etc.. vs this 10 year fix.
Are you really secure in your job, definitely not going to move etc..? Is your LTV already at the level where you'd be fixing at the best rates they can offer like say a LTV of 60% or better? 10 years is a long time....
Personal view - though the UK mortgage market is fairly competitive/efficient you're probably paying a little bit more for a 10 year fix than necessary re: the risk of interest rates rising. Though it is perhaps a bit crude to compare mortgages to say the difference between 2 and 10 year Libor swap rates.
To emphasise this it might be worth comparing the figures in terms of the amount you'll actually be paying over those 10 years rather than just eyeballing the rates. Take a look at the amounts you'll pay if interest rates do nothing or if they just move up by say 0.25 or 0.5 etc.. or more at various points if on say a lifetime tracker etc.. vs this 10 year fix.
Are you really secure in your job, definitely not going to move etc..? Is your LTV already at the level where you'd be fixing at the best rates they can offer like say a LTV of 60% or better? 10 years is a long time....
Personal view - though the UK mortgage market is fairly competitive/efficient you're probably paying a little bit more for a 10 year fix than necessary re: the risk of interest rates rising. Though it is perhaps a bit crude to compare mortgages to say the difference between 2 and 10 year Libor swap rates.
I've not read much of this post, but I'll put my thoughts down anyway.
I took out a 10 year fix around 8 years ago on my old house at around 4.5% ever since then rates have dropped and I've moved house. I've kept hold of that house to rent partly because of my naff old mortgage and a drop in house prices in the area.
Additionally I took a 5 year fix out on my current place and then paid around 10k to get out of it since I was paying for rates too high and would save myself 10k in 6 months in different deal.
All I will say is, circumstances change and 10 years is an awfully long time. I could pay to get out my old 10 year fix, but financially it isn't worth it. I certainly wouldn't take one again.
I took out a 10 year fix around 8 years ago on my old house at around 4.5% ever since then rates have dropped and I've moved house. I've kept hold of that house to rent partly because of my naff old mortgage and a drop in house prices in the area.
Additionally I took a 5 year fix out on my current place and then paid around 10k to get out of it since I was paying for rates too high and would save myself 10k in 6 months in different deal.
All I will say is, circumstances change and 10 years is an awfully long time. I could pay to get out my old 10 year fix, but financially it isn't worth it. I certainly wouldn't take one again.
The outstanding amount changes every month.
I'm on a 2 year fix at the moment. I pay exactly the same amount every month but the breakdown of where that money goes changes each month as the capital is paid off. Each month the amount that goes on servicing interest reduces slightly and the amount going towards paying off the outstanding amount increases slightly.
Caporegime
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Exactly so he only has 10 years left meaning the interest won't be that large anyway.
So best to fix short term and overpay the difference then fix again.
Fixing long term will never be a thing now.
House prices have become too expensive. Wages have stagnated for 15 years in the majority of the country and quite frankly the UK is a dump living off past laurels.
MPs only care about their second jobs and making their friends and themselves money. If interest rates went up significantly there would be riots.
MPs don't get to set interest rates, the Bank of England's Monetary Policy Committee does.
So, just some basic information on what was offered.
On an outstanding mortgage of £47k I have been offered 10yrs fixed at 2.39%, so paying back £52,920 over the term with £0 upfront transfer costs.
If I was willing to lock in for just 2yrs I could get 1.69% with £1k arrangement fees or 1.99% without.
The question I'm answering as I'm sure many experts are too is what will the interest rate be in 2yrs time - is it worth me saving <1% in interest for 2yrs; but then finding I cannot get 2.39%
On an outstanding mortgage of £47k I have been offered 10yrs fixed at 2.39%, so paying back £52,920 over the term with £0 upfront transfer costs.
If I was willing to lock in for just 2yrs I could get 1.69% with £1k arrangement fees or 1.99% without.
The question I'm answering as I'm sure many experts are too is what will the interest rate be in 2yrs time - is it worth me saving <1% in interest for 2yrs; but then finding I cannot get 2.39%
Soldato
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How much can you afford to overpay, and what is your current SVR %
If you could answer that question then you might as well take some massive punts on bond futures and become super rich.
Are those the best products you could find for your situation - have you given a broker a quick call just to check if they could do any better? It does seem that lifetime trackers, at least those with nice rates, have disappeared these days and are instead more like 2 or 3 year products complete with fixed arrangement fees that are relatively expensive to you given the amount you're borrowing. You might want to compare some 5 year deals too both trackers/discounted rates and fixed rates.
Do keep in mind that you're borrowing a very small amount there and your arrangement fee of 1k for the 2 year fix is actually quite significant too - with the amount you're borrowing then over two years you'd presumably go for the 1.99% deal and no arrangement fee right? That's not much of a difference in rates since it is only an additional 0.4% to fix for 10 years... it is really down to personal preference!
I'd be inclined to say that if you're thinking of going for a fix because it gives you piece of mind and those are the best rates available for you then you might as well go for it.
Soldato
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Two important questions, what % of your wage is your mortgage, the higher it is the more your at risk with a shorter fix, and the more you should consider a longer one, and vice versa.
Second is the minmax maxmin question, do you want to minimise the maximum you will pay (then take the 10 year fix) or maximise the minimum you may pay (take the lowest rate you can get at any one time)
My only other tip is never ever listen to Psycho Sonny, his advice is always short fix.
People always come up with reasons interest rates cannot rise. Look at the US, similar rates to us 2 years ago, now 2%. No riots there, wouldn't be riots here either. I don't remember any riots when mortgage rates went to 17%.
Interest rates are not purely set with homeowners in mind, its why they do affordability checks against around 5-7% when you apply for a mortgage now.
Second is the minmax maxmin question, do you want to minimise the maximum you will pay (then take the 10 year fix) or maximise the minimum you may pay (take the lowest rate you can get at any one time)
My only other tip is never ever listen to Psycho Sonny, his advice is always short fix.
People always come up with reasons interest rates cannot rise. Look at the US, similar rates to us 2 years ago, now 2%. No riots there, wouldn't be riots here either. I don't remember any riots when mortgage rates went to 17%.
Interest rates are not purely set with homeowners in mind, its why they do affordability checks against around 5-7% when you apply for a mortgage now.
Caporegime
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Monthly payment @ 1.99% is £432 a month and with nationwide you can do a 5 year fix for 2.09% and is £434 a month.
I'd do 5 year fix this saves you £15 a month in interest over a 10 year fix.
Plus at £430 a month you should be able to overpay some.
Fixing for 10 years would be a mistake at these figures. You owe so little that changes in interest rate in 5 years time won't effect you much at all.
5 year fix nationwide is what I would do now I know the figures.
Also don't get a mortgage with a fee. Mortgages with fees are for people borrowing a minimum of £300k usually.
We mortgage-slaves tend not to riot. We know one month in prison and we'll miss a payment and lose our home; or one criminal conviction and our career is shot. Once you're invested in society you don't want to break it anymore. Thatcher's Right to Buy was a master-stroke. People work twice as hard and put up with four times as much to keep the home they owe money on.
This is really a form of gambling. It depends how risk averse you are. If you take the option that rates won't get any lower the difference between the 2 rates of the 10 year period is £1021.
So the 2.39% 10 year fix will cost you a 1K more if interest rates stay the same for the next 10 years compared to being able to renew at 1.99% with no fees for the other 8 years.
Now as there are thousands of variables given that interest rates could change every month, but probably won't you can't realistically check them all.
But say in 2 years time the best rate was now only the same as the 10 year deal and this carried on for the remaining 8 year. 2.39% that 1K loss would now be reduced to £370.
If best rate was higher at 3% for the remain 8 years then that 1K loss would turn into a £634 gain over the variable.
These example are pretty basic, but give you an idea of the range of costs small rate changes can effect how much you pay.
Psycho Sonny suggestion of a 5 year fix at 2.09 is a good compromise and does make some sense if your not completely risk averse.
If after 5 year you could only get a 3% deal for the remaining 5 Years you'd still be just over £200 better off.
If they hit 4% after 5 years then you would have lost out by around £450 compared to the 10 year fix.
Interest rates could go up if inflation starts to climb. With Brexit happening that is a possible, but no one knows for sure as we have never had a Brexit before to compare to.
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Permabanned
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I see fixing as like an amateur thinking they know better than a pro, or a gambler thinking they can beat the house.
Variable all the way for me, it's cheapest now, and allows unlimited overpayment too.
Variable all the way for me, it's cheapest now, and allows unlimited overpayment too.
Soldato
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I don't think all variable rate mortgages allows unlimited overpayments.
Sorry but that seems a little bit unfair, granted I'd not take his advice re: Chiropractors but he's made a fairly reasonable couple of posts in this thread.
Also I think you meant to type "minimise the minimum" when referring to taking the lowest rate possible not "maximise the minimum". Though I'd hope that that implication of typical fixed and variable rate deals was rather apparent to the OP.
Soldato
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And for example nationwide allows 10% of the initial amount borrowed to be repaid penalty free each year.
I don't think many people can repay that annually with consistency.
Its funny though as I see it pretty much opposite to Billy, being on variable is the gamble, if it always goes your way then your going to be better off, if it goes against you, you could lose your house, literally.
Soldato
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Hes always the same, literally, short term fix, I have never ever seen him say differently.
Hes the same in plenty of other areas as well, can be quite a laugh at times in motors.
No I meant what I typed, its maxmin and minmax.
Maximise the minimum, means take the lowest rate on offer at all times, this is maximising the minimum paid.