Looking at £999 for a 5 year fix potentially. This will save us a whopping £100 over the £0 option for the same period.
Mortgage Rate Rises
- Thread starter glenimp617
- Start date
Looking at £999 for a 5 year fix potentially. This will save us a whopping £100 over the £0 option for the same period.
Whilst I'm on the subject, another common pitfall I see people fall in is neglecting to take into account the outstanding balance at the end of fixed term when comparing two mortgages with different rates and fees. They just look at total cost over the fixed mortgage duration when determining which is best, but being cheaper over the fixed period doesn't necessarily make it a better deal if the difference in mortgage balance at the end of the fixed period is bigger than the saving over that time. Typically, the higher the mortgage rate, the more you will owe after X years (assuming the total term is longer than the fixed period). So as a rule of thumb, a low-rate, high-fee product is probably better than a high-rate, low-fee product in cases where the total payments over the fixed period are the same, because you'll end up owing less on the former.
Soldato
I'm not sure without some more details its possible to even give a semi guesstimate.
But lets look at a simple example
Say you invest £250 for 20 years. At 2% gain per year thats worth @2% annual (all rounded) £370 in 20 years, @3% its £450, 4% its £550, 5% its £660, 6% its £800, 7% is £970
The FTSE seems to keep returning to around the 7% mark over many timespans. Now you can never rely on past performance, but the point in taking a medium/long term approach without a hard end date (unlike endowments) is that you can time the withdrawl.
£250 a year deposited at 7% would be worth circa £10.25k basically doubling the £5k invested.
I don't know for longer term mortgages, but a 25 year mortgage hits just under half repayment at 15 years (51% roughly outstanding)
A worked example, taking £225k over 25 years, paying £21 (to match the £250 a year above), after 20 years the outstanding capital would be just over £7k less. This was at 3.5% interest.
Deffo on shorter term mortgages or if your rate is somewhat close, otherwise early on I would invest and also you then have that as a safety blanket.
Once you hit the middle I would certainly switch to eroding the mortgage capital.
The key point of using a FTSE tracker or something similar is being able to ride it out and time the exit. We all know the markets have ups and downs, once your well into a up you would probably see more than 7%.
The shorter the term, and the higher the repayment the more I think it swings to logically going the pay down the existing mortgage route. I am doing this, heavy repayment (circa an additional 140% per month compared to my monthly agreed repayment).
I will pay mine off somewhere around 7.5 years into a 20 year mortgage term, so the investment angle isn't worth the risk, time period too short to really benefit from compounding.
A split approach can certainly work, I would be tempted to ratchet up the risk portfolio in that case, and again, apply timing to my benefit, maybe switching back to normal risk levels over time.
Soldato
yeah not exactly mind blowing is it although i see the point you were making, it becomes far less viable the bigger the mortgage. Would have worked great 30 years ago.
Soldato
been looking to possible move, spoke with mortgage adviser, and found out the rates are currently between 4%-4.5%!!!
crazy i didn't realise it was so bad. we're on 2.34 and i was hoping for a significant reduction given how much we've paid off in the 3.5 years of having the property. will be crazy that after 5 years we may end up paying more than we do now.
we have 1.25 years last until we renew. not looking forward to that date.
crazy i didn't realise it was so bad. we're on 2.34 and i was hoping for a significant reduction given how much we've paid off in the 3.5 years of having the property. will be crazy that after 5 years we may end up paying more than we do now.
we have 1.25 years last until we renew. not looking forward to that date.
no at all, if you have been getting on average 10-12% annual returns for 20 years then there is a recession that drops your investment by 20-35% then your investments have massively grown.
The 7% average annual return includes all the drops, recessions, stagnant grown. So your expected returns over a long time period is 7% and you can ignore temporary drops. Sure, you might be a bit unlucky or get some extra bonus depending on the particular financial environment at the end, but the accumulated growth will mean you are far ahead.
The critical part is only a suitably long investment time.
Totally fair comment; still think to weather the storm you need moderate cahoonas.
Caporegime
What made you think that your mortgage rate would be better when rates have jumped massively recently
We have about 18 months left on our 5 year mortgage and unless we sort stuff out by then I expect a substantial increase to our 1.91% rate despite having paid off close to £100k on a £250k mortgage. We will do as much as we can to make sure that any rate rise doesn't cost us too much when we pick our next mortgage. Thankfully the amount will be quite low.
Soldato
why follow rates when you have a 5 year fixed was my thought. they also have gone down in the team since i got my mortgage, so figured it was pretty much evening out to what it was precovid.What made you think that your mortgage rate would be better when rates have jumped massively recently
Caporegime
I haven't followed them either but the whole world has kind of gone to **** and rates have flown up in the past 6+ months. Mortgages are a large part of economies so they were always going to mirror that.
but less than buying a house in the first place. Property is more volatile than a tracker fund, has lower average returns, ongoing costs, and is less accessible.
Ya but I can live in it, versus a graph that I can't
Source: he made it up
Property prices less volatile than stock markets
Residential property prices have not risen or fallen as sharply as stock markets since the last downturn in 2008.
www.knightfrank.com
Talk about luck, I had a rental property from when I had to move to the other end of the country and was in negative equity at the time so couldn't really sell.
I've rented it out for 10 years, and the tenants moved out so I sold up last September rather than spend money to re-let it.
I then paid off the max I could on my fixed rate mortgage on my home, leaving about £35k left and I've got £25k in a short term savings account. I cant thinking anything else I can do with that for a year or 2 in this environment, apart from sit on it and pay off chunks of mortgage each year until the fix ends in a couple of years and then hopefully clear it off when the penalties end?
I've rented it out for 10 years, and the tenants moved out so I sold up last September rather than spend money to re-let it.
I then paid off the max I could on my fixed rate mortgage on my home, leaving about £35k left and I've got £25k in a short term savings account. I cant thinking anything else I can do with that for a year or 2 in this environment, apart from sit on it and pay off chunks of mortgage each year until the fix ends in a couple of years and then hopefully clear it off when the penalties end?
I'm due to come out of my 5 year fix in Feb, I fixed for 5 years due to the uncertainty around brexit and the rates were so low at the time. I have been overpaying since I took the mortgate out so in terms of monthly payment I won't notice any difference, I will just see less come off the balance each month.
I'm still not sure whether to go with a shorter fix this time or suck it up and go with another 5 year fix.
I'm still not sure whether to go with a shorter fix this time or suck it up and go with another 5 year fix.
Personally, I cant see another set of extreme circumstances like this with us being post Covid and Brexit and Ukraine kicking off.
My personal strategy is to think that in 3 years most of this will have flushed through the system and we'll be better informed as to how the land lies, not gambling so much, so my 'fixes' will be geared to that timeline.
Ahh yes, you wait a bus and three turn up - must be plain sailing from here
since 2008.Source: he made it up
Property prices less volatile than stock markets
Residential property prices have not risen or fallen as sharply as stock markets since the last downturn in 2008.
The problem with investing in a single property is you are not spreading risks. If you purchased a house in some areas of Detroit for example then it might be worth zero now , with no prospect of ever returning a positive ROI. Stock have high frequency changes, but a tracker over 20 has never given negative growth. If you travel through many European countries you will see small hamlets and rural housing completely abandoned as it has no value any more. Even after the great depression of the 20, stocks recovered and every crash since the recovery has been relatively fast.
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