Interest rates going up soon...
Discussion
egor110 said:
Is anyone tempted to move there mortgage onto a long term fix?
Our house is worth £180,000 and our mortgage is £45,000 on nationwide's base mortgage rate 2.50%.
At present we over pay by £150-£200 a month as it's ends up the same monthly payment as we were paying when we had a fix.
Despite this part of me wonders if it's worth fixing for 5 or 10 years then not worry if the rates go up but on the other hand if we did fix we wouldn't be able to overpay.
Our old fix was fixed at 6% so we can afford the rate to rise so i guess i'd be mad to fix rather than overpay?
One of your problems is that the debt is very small so fees can have a very big impact. Our house is worth £180,000 and our mortgage is £45,000 on nationwide's base mortgage rate 2.50%.
At present we over pay by £150-£200 a month as it's ends up the same monthly payment as we were paying when we had a fix.
Despite this part of me wonders if it's worth fixing for 5 or 10 years then not worry if the rates go up but on the other hand if we did fix we wouldn't be able to overpay.
Our old fix was fixed at 6% so we can afford the rate to rise so i guess i'd be mad to fix rather than overpay?
Fixes often have fees and when you roll that into a small mortgage amount the percentage of up front can be rather high.
For example, crudely speaking, a £1000 fee is around 2% interest.
The 2 yr fix market is awash with enticing rates because a lot of punters don't view the fee properly and can be easily duped into rolling it into the loan. Thus, as a vendor you get a nice upfront loading on a two year window while the customer thinks they are getting a great rate.
Because of the way clients think the two yr rolling debt contract with front loaded fees are fantastic business. It's dirt cheap to lock the risk over such a short period, you get large upfront fee flows and massively increased product rolling.
There are good two yrs out there but you need to focus on the areas where this product is designed to not make you focus.
Extended fixes are my preference but you still have to shop around to avoid a similar fee trap although you are amortizing the fee over a longer duration of product life so it's not as bad but the range of options and pricing are determined more by yield cycles so there can be good and bad times to buy depending on the underlying markets.
To be honest, over a 5 year period it's probably more logical to buy the cheapest overall package with a view to paying it off within that period and thus negate pretty much all of the risk of future rate rises as and when they gather momentum and start increasing faster than the market can cope.
youngsyr said:
Ignoring the fact that banks can get it wrong, you will be paying 2.5% plus any increase that your bank sticks on as the BoE increases over the next couple of years.
As most people predict at least a 0.5% increase in the short term, it seems likely that you'll be paying at least 3.0% per cent if you stay put within a year or so.
I'd see fixing at anything below 3.25% in that scenario a good bet.
Yes, but these were the same people who were predicting 0.5% increase 2 yrs ago.As most people predict at least a 0.5% increase in the short term, it seems likely that you'll be paying at least 3.0% per cent if you stay put within a year or so.
I'd see fixing at anything below 3.25% in that scenario a good bet.
It's a personal choice but the banks aren't offering anything out of the goodness of there heart, it's because they believe they can make money out of it. Off course they can be wrong, but I bet I'm wrong more often than them.
Westy Carl said:
youngsyr said:
Ignoring the fact that banks can get it wrong, you will be paying 2.5% plus any increase that your bank sticks on as the BoE increases over the next couple of years.
As most people predict at least a 0.5% increase in the short term, it seems likely that you'll be paying at least 3.0% per cent if you stay put within a year or so.
I'd see fixing at anything below 3.25% in that scenario a good bet.
Yes, but these were the same people who were predicting 0.5% increase 2 yrs ago.As most people predict at least a 0.5% increase in the short term, it seems likely that you'll be paying at least 3.0% per cent if you stay put within a year or so.
I'd see fixing at anything below 3.25% in that scenario a good bet.
It's a personal choice but the banks aren't offering anything out of the goodness of there heart, it's because they believe they can make money out of it. Off course they can be wrong, but I bet I'm wrong more often than them.
Your view assumes he's starting at a point where he's not tied into paying interest for the next 10 years.
However, he's on 2.5% variable now, I'd bet good money he'll be paying more than that in a year's time with it increasing after that.
So, if he can fix now for 2 years + at 3.25% or below, that to me is a good bet.
Of course, that may turn out to be completely the wrong decision, but no-one has a crystal ball and it at least limits the potential downside with what looks to be a good potential upside.
youngsyr said:
egor110 said:
Westy Carl said:
youngsyr said:
Entirely your call and my guess is as worthless as the next, but if I were in your position I would be looking to fix at anything under 3.25% for as long as possible (minimum 2 years).
Why fix? The bank have choosen the fix rate, don't you think they have set it to be in there favour?As most people predict at least a 0.5% increase in the short term, it seems likely that you'll be paying at least 3.0% per cent if you stay put within a year or so.
I'd see fixing at anything below 3.25% in that scenario a good bet.
Derek Chevalier said:
Do you mean the markets getting it wrong rather than the banks - the latter will be pricing their fixes off the corresponding swap rate given by the former?
It's the banks that set their own rates, so ultimately it's them that get it wrong, not that it's really relevant?youngsyr said:
It's the banks that set their own rates, so ultimately it's them that get it wrong, not that it's really relevant?
The banks don't set the swap rates per se, the markets determine that the 5yr (for example) swap rate is 2.24%. Yes, the bank will originate the mortgage, package it up and sell it on but this is based on a spread above the swap rate. (Of course if it doesn't sell on the mortgage, then yes it will be taking on some interest rate and credit exposure.)fido said:
youngsyr said:
It's the banks that set their own rates, so ultimately it's them that get it wrong, not that it's really relevant?
The banks don't set the swap rates per se, the markets determine that the 5yr (for example) swap rate is 2.24%. Yes, the bank will originate the mortgage, package it up and sell it on but this is based on a spread above the swap rate. (Of course if it doesn't sell on the mortgage, then yes it will be taking on some interest rate and credit exposure.)All of which is irrelevant of course, it doesn't make any difference whether for our purposes whether the banks set the rate or the market does.
youngsyr said:
egor110 said:
Westy Carl said:
youngsyr said:
Entirely your call and my guess is as worthless as the next, but if I were in your position I would be looking to fix at anything under 3.25% for as long as possible (minimum 2 years).
Why fix? The bank have choosen the fix rate, don't you think they have set it to be in there favour?As most people predict at least a 0.5% increase in the short term, it seems likely that you'll be paying at least 3.0% per cent if you stay put within a year or so.
I'd see fixing at anything below 3.25% in that scenario a good bet.
egor110 said:
best i've found is 2.94% at hsbc fixed for 5 years or 10 year fix at 3.99% with woolwich , trouble is there's a £1499 arrangement fee whereas yorkshire building society do a 10 year fix for 4.34 % with a £519 fee.
You'll have to do the maths - work out what the interest over the length of the mortgage plus fees is under the mortgage offers you've found and then compare it to the interest on your current mortgage assuming no interest rate rise, a 0.75% interest rate rise and so on.youngsyr said:
Derek Chevalier said:
Do you mean the markets getting it wrong rather than the banks - the latter will be pricing their fixes off the corresponding swap rate given by the former?
It's the banks that set their own rates, so ultimately it's them that get it wrong, not that it's really relevant?Derek Chevalier said:
youngsyr said:
Derek Chevalier said:
Do you mean the markets getting it wrong rather than the banks - the latter will be pricing their fixes off the corresponding swap rate given by the former?
It's the banks that set their own rates, so ultimately it's them that get it wrong, not that it's really relevant?youngsyr said:
Derek Chevalier said:
youngsyr said:
Derek Chevalier said:
Do you mean the markets getting it wrong rather than the banks - the latter will be pricing their fixes off the corresponding swap rate given by the former?
It's the banks that set their own rates, so ultimately it's them that get it wrong, not that it's really relevant?GTIR said:
You're getting confused with BOE and mortgage rates which is what I said would rise, not inline with BOE.
We've already seen a 1% rise on mainstream offers in six months.
No we havent, i fixed at 1.59% for two years four months ago, the same deal is still there now. It was meant to be 1.49% but there was a small increase during the lengthy application process. We've already seen a 1% rise on mainstream offers in six months.
Derek Chevalier said:
youngsyr said:
Derek Chevalier said:
youngsyr said:
Derek Chevalier said:
Do you mean the markets getting it wrong rather than the banks - the latter will be pricing their fixes off the corresponding swap rate given by the former?
It's the banks that set their own rates, so ultimately it's them that get it wrong, not that it's really relevant?egor110 said:
best i've found is 2.94% at hsbc fixed for 5 years or 10 year fix at 3.99% with woolwich , trouble is there's a £1499 arrangement fee whereas yorkshire building society do a 10 year fix for 4.34 % with a £519 fee.
Pm sarnie or look in the finance sub forum, ph mortgage bloke.youngsyr said:
AIB went under because it got it wrong and clearly wasn't "fully hedged".
Long/short; Counter party default meant that the hedges fell back into them. Ie they lent to their institutional clients to enable them to gear up on their holdings of mortgage debt. So when asset values collapsed for the bonds their clients couldn't pay the margin and the risk defaulted back. gibbon said:
GTIR said:
You're getting confused with BOE and mortgage rates which is what I said would rise, not inline with BOE.
We've already seen a 1% rise on mainstream offers in six months.
No we havent, i fixed at 1.59% for two years four months ago, the same deal is still there now. It was meant to be 1.49% but there was a small increase during the lengthy application process. We've already seen a 1% rise on mainstream offers in six months.
What I'm trying to say that % rates will and have gone up and, this is the important bit, if they don't the fees will.
As someone mentioned earlier. Rates are only going one way. Up!
So when yours ends it'll be just in time for when they have gone up.
Edited by GTIR on Wednesday 25th June 22:35
GTIR said:
Ok let's not argue about %, I'm taking about 5yr fixed anyway.
What I'm trying to say that % rates will and have gone up and, this is the important bit, if they don't the fees will.
As someone mentioned earlier. Rates are only going one way. Up!
So when yours ends it'll be just in time for when they have gone up.
Im aware of the end timing, but thanks. I was simply giving an example of showing how rates arnt really moving in terms of mortgage rates, they are a small amount, but hardly to the level ou are talking.What I'm trying to say that % rates will and have gone up and, this is the important bit, if they don't the fees will.
As someone mentioned earlier. Rates are only going one way. Up!
So when yours ends it'll be just in time for when they have gone up.
Edited by GTIR on Wednesday 25th June 22:35
I havent checking sterling swaps today, but I really dont think the curve is priced the way you believe, did you see the US data out today? Terrible. Carney? Hes already back tracking.
Besides, if you can borrow money at below inflation, its a no brainer.
gibbon said:
did you see the US data out today? Terrible. Carney? Hes already back tracking..
Terrible, who said that?It's below forecast but is expected to continue to increase as is the UK, which is doing far better than the US and most of Europe.
I've not seen any news reports of Carney "back tracking" (sic) because of US GDP reports. He'd be pretty stupid if that was the case.
Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff