10yr Fixed Rate Mortage or risk shorter terms?

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.

I’m lucky as my terms mean I can overpay as much as I like.
 
Caporegime
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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.

This seems like a rather muddled application of decision theory/game theory, not wanting to derail too much (I know :D) but.... taking the lowest rate (in this case inevitably the variable rate) is not maximising the minimum paid but rather it is minimising it.

edit - to just clarify as I hope this can summarise it better than what I originally typed - I think where the muddle is coming in is that you've heard of the terms minmax and maxmin and have slightly confused their use as they're referring to the same strategy but from the opposite perspective (minmax in terms of losses or maxmin in terms of gains). Remember that a loss is a negative gain, minimising the maximum loss is maximising the minimum gain. This is the pessimistic solution i.e. the fixed rate deal.

http://mlwiki.org/index.php/Max_Min_Strategy

The opposite strategy of a max min strategy (or min max in terms of losses) is max max:

http://mlwiki.org/index.php/Max_Max_Strategy
Idea: Extreme Optimism

  • the opposite of Max Min Strategy
  • Base your choice on the best situation that can happen
  • and maximize the consequences in the best case

I think that is what you meant and that is what the floating rate deal is - the optimistic solution - you're maximising your maximum possible gain... (or since all the gains here are negative and you were talking about losses then you mean minimising the minimum loss.)
 
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Caporegime
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By ‘maximise the minimum” he means make the amount you”re paying as low as possible....make the minimum as low a number as possible!

Yeah that is what I thought he meant, it just isn't correct. If you're trying to make something the lowest amount possible you're minimising it. :)
 
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Yeah that is what I thought he meant, it just isn't correct. If you're trying to make something the lowest amount possible you're minimising it. :)

No not game theory, decision theory

Its quite simple your trying to maximise the minimum paid, which means chasing the lowest rate at all times, or minimise the maximum which means fixing for as long as possible to limit the time you can be affected by a higher rate
In this model over multiple years and with likely costs you can decide to take or not it would require repeated decisions when each opportunity for change presented itself.

Game theory, at least as you linked above is relating to a closed loop system, we are using decision maths (or normative decision theory) to undertake multiple choices.
In this case our object is to Maximise the chances (or opportunity) to pay the minimum amount which is normally a strategy applied to costs, as in this case the costs of interest

Game/decision theory are similar and use cross terminology :)

https://en.wikipedia.org/wiki/Decision_theory

"Normative decision theory is concerned with identifying the best decisions by considering an ideal decision maker who is able to compute with perfect accuracy and is fully rational. The practical application of this prescriptive approach (how people ought to make decisions) is called decision analysis, and is aimed at finding tools, methodologies and software (decision support systems) to help people make better decisions."
 
Caporegime
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I’m aware of what decision theory is thanks, you’ve made a mistake though as already explained. You’ve just muddled up minmax that’s all. Maximising the minimum loss (amount paid) is just silliness. Minimising the maximum loss is indeed what fixing achieves.

If you don’t believe me or are going to dispute this and post in a link then perhaps defining exactly what you think you’re referring to.

https://en.m.wikipedia.org/wiki/Minimax
 
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I’m aware of what decision theory is thanks, you’ve made a mistake though as already explained. You’ve just muddled up minmax that’s all. Maximising the minimum loss (amount paid) is just silliness. Minimising the maximum loss is indeed what fixing achieves.

If you don’t believe me or are going to dispute this and post in a link then perhaps defining exactly what you think you’re referring to.

https://en.m.wikipedia.org/wiki/Minimax

Well clearly your not because yet again you linked game theory.

But its not worth it your never wrong. I honestly dont know why I bother taking you off ignore.
I could scan you one of my books but honestly then you will just accuse that of being wrong as well.
 
Caporegime
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This isn’t a political opinion to debate, I provided an explanation as you seemed to have got something muddled, I'm more than happy to admit if I'm factually wrong about something it seems to be more of an issue for you in this instance, you’ve now replied twice without any clarification, just some vague waffle about decision theory and a claim that I'm supposedly talking about something completely different:

Well clearly your not because yet again you linked game theory.

It is used in multiple fields:
wikipedia said:
Minimax (sometimes MinMax or MM[1]) is a decision rule used in artificial intelligence, decision theory, game theory, statistics and philosophy for minimizing the possible loss for a worst case (maximum loss) scenario. When dealing with gains, it is referred to as "maximin"—to maximize the minimum gain.

Simple example - lets say the total payable under a fixed rate deal is 50k, lets say interest rates are low and would result in a total payable for 47k but if they rise will result in a total amount payable of say 55k. (of course the variable rate can result in multiple values being paid in total but having one above and one below will suffice here)

Whats our maximum loss whether rates stay the same or rise under the fixed scenario?
max[50,50] = 50
What is our maximum loss under the variable rate scenario?
max[47,55] = 55
What is the minimum of these maximum losses?
min[50,55] = 50

So we pick the fixed rate if we're to minimise the maximum loss, this is the pessimistic strategy, look at what the worst case is, what the greatest amount you can lose is under each choice and minimise it. Now maximising the minimum loss makes no sense i.e. you want to make the minimum you lose as big as possible!!! In this simple scenario that actually works out to be the fixed rate too (check for yourself if you don't believe me) but could give you some silly solutions in others as ought to be obvious.

The optimistic strategy is, as mentioned before, the max max one linked to (with ref: to gains) or in this case (as we're looking at losses) taking the scenario that provides the minimum of the minimum possible losses, essentially looking at which choice offers the best result and hoping we have a best case scenario. It is trivial enough to work through a simple example again and show this means picking the variable rate.
 
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This isn’t a political opinion to debate, I provided an explanation as you seemed to have got something muddled, I'm more than happy to admit if I'm factually wrong about something it seems to be more of an issue for you in this instance, you’ve now replied twice without any clarification, just some vague waffle about decision theory and a claim that I'm supposedly talking about something completely different:



It is used in multiple fields:


Simple example - lets say the total payable under a fixed rate deal is 50k, lets say interest rates are low and would result in a total payable for 47k but if they rise will result in a total amount payable of say 55k. (of course the variable rate can result in multiple values being paid in total but having one above and one below will suffice here)

Whats our maximum loss whether rates stay the same or rise under the fixed scenario?
max[50,50] = 50
What is our maximum loss under the variable rate scenario?
max[47,55] = 55
What is the minimum of these maximum losses?
min[50,55] = 50

So we pick the fixed rate if we're to minimise the maximum loss, this is the pessimistic strategy, look at what the worst case is, what the greatest amount you can lose is under each choice and minimise it. Now maximising the minimum loss makes no sense i.e. you want to make the minimum you lose as big as possible!!! In this simple scenario that actually works out to be the fixed rate too (check for yourself if you don't believe me) but could give you some silly solutions in others as ought to be obvious.

The optimistic strategy is, as mentioned before, the max max one linked to (with ref: to gains) or in this case (as we're looking at losses) taking the scenario that provides the minimum of the minimum possible losses, essentially looking at which choice offers the best result and hoping we have a best case scenario. It is trivial enough to work through a simple example again and show this means picking the variable rate.

Ah so now it makes sense, your confusing the abilty to evaluate the scenario with imperfect information. as I said before its not a closed system, this is quite key. But anyway I really dont want to go any further down the dowie rabbit hole.
Your also again confusing costs and losses. we are either seeking to minimise cost or minimise risk, or if you look at it the other way looking to maximise the opportunity to pay as little as possible or maximise the security of having a known rate.
Which boils down to, do you want to minimise the cost, or maximise the security.

Lets go back to what i said, that in your true land of wierd you took offence to. It was to make the OP think about their motivataion, its the same question as an IFA will ask but in a different way, they will normally start the conversation in regards appetite for risk.

"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)"

We have perfect information about one path, we have imperfect information about the other path. We could go into EV analysis on a number of scenarios of the second.

I am sorry it tweaked your pedantry gene.

I will reword it, assume simple english here with normal definitions.

"Second is the choice of strategy, do you seek to limit the maximum you will pay by minimising the risk of higher rates with the ten year fix, or do you seek to maximise the opportunity to pay the minimum by taking the lowest rate you can achieve at any one time"

I have never found anyone who doesn't get the point before.

But cool, nice way to derail another thread
 
Soldato
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I went for 5 year fixed instead of 10 year fixed but I worked out if I pay 10 % overpayment every year I'll go from the 11 year term to paying off in 5.5-6.5 years.

So the remaining amount after all over payments is small so if interest rates go up even drastically, I'll only be paying a small amount of interest at the end.
 
Caporegime
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Ah so now it makes sense, your confusing the abilty to evaluate the scenario with imperfect information. as I said before its not a closed system, this is quite key.

I never claimed it was... I provided a simple example to illustrate the point! I'm not confusing anything in the above, the only confusing here has been your use of the terms minmax and maxmin.

The fact you can't link to anything to support what you claim or even provide a clear explanation of what it is you're really claiming says it all, you've kept things vague and then resorted to ad hominem. This isn't a political discussion - either clearly define and link to what you're claiming or you're just adding more waffle.

To use an often misattributed quote: "You do not really understand something unless you can explain it to your grandmother."
 
Soldato
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I went for 5 year fixed instead of 10 year fixed but I worked out if I pay 10 % overpayment every year I'll go from the 11 year term to paying off in 5.5-6.5 years.

So the remaining amount after all over payments is small so if interest rates go up even drastically, I'll only be paying a small amount of interest at the end.
I'd be interested in the maths behind this. Can't see, intuitively, how it's possible, unless you have an interest rate of about 30%
 
Soldato
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2.19% interest. 11 year term. £451 a month. 53k loan, 47k deposit.

Paid 10% for first year within a month, got next year's allowance in bank so when it's reset I'll pay in £5300.

Mortgage free within 6 years :) and very low amount of interest paid
 
Caporegime
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^^^I think that is a reasonable plan - the mortgage suggested below is probably worth a look. (Of course often worth having an initial chat with a broker too and seeing what they come up with)

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.
 
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I never claimed it was... I provided a simple example to illustrate the point! I'm not confusing anything in the above, the only confusing here has been your use of the terms minmax and maxmin.

The fact you can't link to anything to support what you claim or even provide a clear explanation of what it is you're really claiming says it all, you've kept things vague and then resorted to ad hominem. This isn't a political discussion - either clearly define and link to what you're claiming or you're just adding more waffle.

To use an often misattributed quote: "You do not really understand something unless you can explain it to your grandmother."

Well others seemed to understand, so I guess your harder of understanding than my grandmother ;)
 
Caporegime
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With overpayments, isn't it slightly better to spread it over the course of a year rather than doing a single lump sum, where interest is concerned?
 
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2.19% interest. 11 year term. £451 a month. 53k loan, 47k deposit.

Paid 10% for first year within a month, got next year's allowance in bank so when it's reset I'll pay in £5300.

Mortgage free within 6 years :) and very low amount of interest paid

10% of the original loan?

Yeah pretty much any mortgage is paid off around 5-6 years if you can make 10% of the original loan amount in additionals per year, it needs to be a really really long loan term to stretch that much longer.

When I moved a few years ago I took a 10 year fix with 20 year term. I rebuilt savings for first couple of years, and now overpaying 10% annually. Will be cleared in year 8 (just over 7 years total), but I only paid the normal mortgage amount as i said for the first couple of years.

Who is the lender? Nationwide allow you to keep standard payments the same, make overpayments and also keep the original term the same. The overpayments go into a reserve that techniclally you can use for a payment holiday, only committment is you stick to the original repayment date.
 
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With overpayments, isn't it slightly better to spread it over the course of a year rather than doing a single lump sum, where interest is concerned?

The sooner you make them the sooner they affect interest, now balances are calculated daily your better getting the balance down asap.
What you say makes sense if someone would consider saving the overpayment then making it
 
Soldato
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Can someone re educate me here, why pay mortgages off early when they are at such good rates? wouldn't you be better with full term and inflation helping make the payments less significant and investing any savings elsewhere with much better returns?
 
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