Mortgages - how long to fix for?

Admiral Huddy said:
This might sound harsh so bear with me here.. What's the worst that can really happen? If your mortgage gets to a point that you can't afford it then let it go if it came to that point.. The property if never really yours until it's paid off anyway.. You'll have a bad debt for a few years but heck.. You can rent and you've lost nothing. I know loads of people who have done this.

On the contrary, any overpayment's on a flexible plan will trim back the principle loan which in turn will reduce your interest repayments over time... You might as as well do this whilst rates are exceptionally low. You'll save a fortune of interest and the mortgage will mature early. As I said earlier, most flexible mortgages allow a "nest egg" which performs the offsets and if you need to delve into it to cover part repayments, then it's there but the you've taken full advantage in the meantime.

If you've fixed your mortgage say at 4% for 5 years, and the rates don't exceed this until year 4, what have you really saved? Possibly one year.
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1) Most fixed rate mortgages allow you to overpay anyway. I can overpay up to 10% of the outstanding capital per year without incurring early repayment charges.
2) It still comes down to how you value possible savings against peace of mind. Some of us would rather have peace of mind and guaranteed outgoings.
 
Mr Jack said:
Fixed is for peace of mind, not financial sense. Fixed rates are always set at a level where the lenders expect to make more money from you than on their other deals because they transfer risk from you to the lender.
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This doesn't make sense tbh... they're not in the business of speculation when it comes to selling retail mortgage products and turning fixed payments into floating is simply a case of executing a swap trade.
 
vonhelmet said:
1) Most fixed rate mortgages allow you to overpay anyway. I can overpay up to 10% of the outstanding capital per year without incurring early repayment charges.
2) It still comes down to how you value possible savings against peace of mind. Some of us would rather have peace of mind and guaranteed outgoings.
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That is absolutely fine, as long as you accept that you are paying through the nose for that piece of mind. As i said before, it is mitigating risk at a cost, much the same as an insurance product.
 
Jez said:
That is absolutely fine, as long as you accept that you are paying through the nose for that piece of mind. As i said before, it is mitigating risk at a cost, much the same as an insurance product.
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Well, time will tell on whether I am "paying through the nose" for it.

In any case, I would happily pay more, within reason, to mitigate the risk, so the deal is fine for someone with my approach to risks as I do not perceive the cost to be excessive in proportion to the risk offset.
 
I worked out the monthly cost of 4 mortgages each £5k more than the previous, with monthly or interest only repayments ranging from 2% upto 10% increasing in .5% increments. My logic is that interest rates were around 8/9% back in 93/94 and steadily decreased since. Should they for some reason rocket back up over the next 25 years I can still afford them even at 10%.

It's a rather harsh scenario should it ever arrise but providing I'm employed I wouldn't loose my home, but I wouldn't have much spare cash per month either, around £200 worst case scenario. However I plan to over pay whilst rates are low and even more so if I have some lodgers.

Where as previously I was considering a fixed 5 year deal I'm now leaning towards a fixed/tracker @ 2.25% above base rate which offers me a little security and peace of mind yet is still cheaper than a fixed, for now.
 
vonhelmet said:
Well, time will tell on whether I am "paying through the nose" for it.
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No, i am telling you that you ARE paying through the nose for it. The fact that this is worth it to you is great. But others should be aware that fixing is very rarely a financially sound thing to do.
 
vonhelmet said:
1) Most fixed rate mortgages allow you to overpay anyway. I can overpay up to 10% of the outstanding capital per year without incurring early repayment charges.
2) It still comes down to how you value possible savings against peace of mind. Some of us would rather have peace of mind and guaranteed outgoings.
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But the money you would otherwise be contributing for that comfort, could be going into a reserve as illustrated below:



repay.jpg


This example isn't based on any rates, but shows that you can build a reserve which is offset against the principle amount therefore reducing the interest paid. The money going into the reserve would be the cash that would otherwise be going into a fixed rate.. and as you can see, at year 4, if the repayment are too excessive you can dip into that reserve. The piece of mind is the reserve, knowing you will reduce the life of the loan plus you knowing you aren't giving me a bonus next year :D
 
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Decent graph that, thanks :)

The option to over pay which will reduce the interest but yet can be accessed and pulled back out should that cash be needed in an emergency is useful.
 
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vonhelmet said:
It still comes down to how you value possible savings against peace of mind. Some of us would rather have peace of mind and guaranteed outgoings.
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Which is cool. But that's a service you are paying for, and while there is a small chance you will end up better off on the deal, the likelyhood is that you will end up with less money because of it.

If that's probable loss is worth the security to you, then - great - you've spent your money well. It will not, however, ever be the wisest decision on a purely financial level.
 
Admiral Huddy said:
This might sound harsh so bear with me here.. What's the worst that can really happen? If your mortgage gets to a point that you can't afford it then let it go if it came to that point.. The property if never really yours until it's paid off anyway.. You'll have a bad debt for a few years but heck.. You can rent and you've lost nothing. I know loads of people who have done this.
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who in their right mind would risk this happening? the trauma this would cause a first time buyer, young family, infact anyone with a bit of realism and self respect is just simply not worth thinking about. we're talking about roofs over heads here that can be budgeted to put food on tables, not some high flying property entrepeneur (though i am aware that some people make a lot jumping from property to property, this is not what the op is about) and if you get it wrong then you can find yourself in a heap of trouble and this is in a country that will do as much as it can to help.
 
vonhelmet said:
Well, time will tell on whether I am "paying through the nose" for it.
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this tbh...

I don't think people appreciate how big the swap market is - it really isn't hard for a bank to offer a 10 year fixed deal and it doesn't have to involve them taking on any extra risk.

There is a risk of interest rates decreasing when you hold a fixed rate mortgage and a risk of interest rates increasing when you hold a floating rate mortgage - swings and roundabouts tbh....

To hold the view that one is always a rip off compared with the other is nonsense.

(FWIW I've got neither and nor do I have a view on whether I'd get a fixed or floating rate deal at this particular moment in time if I were to buy but I certainly would consider either)
 
cm1179 said:
who in their right mind would risk this happening? the trauma this would cause a first time buyer, young family, infact anyone with a bit of realism and self respect is just simply not worth thinking about. we're talking about roofs over heads here that can be budgeted to put food on tables, not some high flying property entrepeneur (though i am aware that some people make a lot jumping from property to property, this is not what the op is about) and if you get it wrong then you can find yourself in a heap of trouble and this is in a country that will do as much as it can to help.
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?? I think you are missing the point.. My comment was in the unlikely and extreme situation.. How many people do you see who have had homes repossessed and living in the streets. I've known people that have been better off for doing so when times got so hard.. Speaking from a practical point of view all I'm saying is that it's just bricks and mortar, which the bank owns anyway. I have a family and mortgage myself.. Entering into the property market isn't something to be taken light hearted and there are always risks.. high flyer's or not .
 
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Surely if you budget for being able to afford the mortgage at twice the rate it currently is now or between 7-10 percent then there's nothing to worry about other than the security of your job? If you see rates starting to get high again then fixing could provide a short term solution providing fixed deals are still available.
 
why not look for a fixed rate that can be transferred.

our fixed rate is up in aug/sept but we were told we can move during that time period just would mean having a second mortgage for a while until one ends them combine them
 
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