£1.50 for every £1 borrowed...

£1.50 for every £1 borrowed...

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anonymous-user

Original Poster:

69 months

Monday 17th July 2017
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[redacted]

BRISTOL86

1,097 posts

120 months

Monday 17th July 2017
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That figure is probably based on you reverting to their standard variable rate after the 2 year fix is over, which presumably you wouldn't do - you'd find another mortgage and fix for another 2 years etc.

DonkeyApple

62,631 posts

184 months

Monday 17th July 2017
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I would also assume that it's calculated based on the first two years at the discount and the remainder at their svr.

But, with the world of short dates fixes the real cost tends to be somewhat obscured as it is a function of the size of your debt v the roll over fees and their frequency. The SVR is merely a sales tool that attempts to make the structured product look as cheap as possible.

Unless you have a very large mortgage then as a percentage the rollover fees every couple of years become a very significant cost. And a cost which the regulator does not force the vendor to produce a projection on.

If you want to get an alternate calculation of what you'll be paying then it's worth guesstimating all your product and valuation fees that you'll pay over the lifetime of your expected loan as much as any guesstimate based around current SVR.

mfmman

2,969 posts

198 months

Monday 17th July 2017
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I think you probably are overthinking a bit, although the figures should have been clear enough when you re-mortgaged before and when you took out your original mortgage so the compounding effect of the interest shouldn't have been such a surprise

However if this bit really is correct, then I would be concerned if I were in your shoes

anonymous said:
[redacted]
Whilst I have no real idea about how rates might change, an increase of 1.5% on the best available deal doesn't seem implausible over the next few years

Have you tried to do too much at once. You have cut the term and extended the loan, is this a step too far

To reduce the risk, perhaps a five year fix at around 2% might suit you better?

BoRED S2upid

20,694 posts

255 months

Monday 17th July 2017
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Why are you only fixing for 2 years if the thought of higher interest rates scares you and you couldn't afford the repayments? Surely 5 year fix would give you less worry?

wiggy001

6,742 posts

286 months

Monday 17th July 2017
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If money is that tight, I wouldn't be reducing the term. I would be overpaying to reduce the term which has the same net effect but allows you to stop overpaying if things get tight later on.

DonkeyApple

62,631 posts

184 months

Monday 17th July 2017
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If it's all that tight why are you adding an extra £10k to the loan? That bit doesn't make sense. We are obviously going to have higher interest rates over the lifetime of your loan so it seems like you are just making yourself a deadman walking and hoping for another State bailout for everyone?

Wacky Racer

39,751 posts

262 months

Monday 17th July 2017
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Mortgage rates rose to 15% briefly around 1991, people today paying rates less than 3% don't know they are born...smile

Make hay while the sun shines....

Sheepshanks

37,172 posts

134 months

Monday 17th July 2017
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anonymous said:
[redacted]
That's only because you're borrowing for a lot of years. If you paid it back in a year the interest (in £) would be hardly anything. That's why people like to overpay their mortgages if they can.

anonymous said:
[redacted]
What are your actual amounts? It's a bit scary that you'd be in major difficulties at 3%.

anonymous said:
[redacted]
Most of the country doesn't have a mortgage. wink

Edited by Sheepshanks on Monday 17th July 10:07

DonkeyApple

62,631 posts

184 months

Monday 17th July 2017
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Wacky Racer said:
Mortgage rates rose to 15% briefly around 1991, people today paying rates less than 3% don't know they are born...smile

Make hay while the sun shines....
True but you could also get well over 10% on your cash and your stock market investments were rocking.

Sheepshanks

37,172 posts

134 months

Monday 17th July 2017
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anonymous said:
[redacted]
Picking some random numbers of £230K and 20 years - that costs £1114 at 1.54% and £1275 at 3%. That comes out at nowhere near £2800 at 11% though.

mjb1

2,585 posts

174 months

Monday 17th July 2017
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wiggy001 said:
If money is that tight, I wouldn't be reducing the term. I would be overpaying to reduce the term which has the same net effect but allows you to stop overpaying if things get tight later on.
As above, don't shorten the term. Assuming there is provision to overpay without penalty, do that instead. Gives you some flexibility that way. Has the lender passed you on all the affordability checks yet (presume they will be doing so, due to shortening the term and extending the extra 10k)? I'm surprised that they think you can afford to repay at the SVR, when you think you'd struggle to afford it. They are pretty conservative when it comes to affordability these days.

Bear in mind that if rates rise, the cheap fixes will disappear very quickly. What is the SVR they are offering (most are around the 4% mark at present)? Guess you're aware that the 'V' is for variable, so that means it'll rise in line with the base rate. What I'm saying is, that if interest rates rise within the next 2 years (even by 0.5%), you could end up stuck on their SVR at 5%. Yet you're convinced you'd be stretched at 3%?

But yes, paying back £1.50 per £1 is about right, due to the compounding of the interest. Sit down with excel and run it through a spreadsheet so you can understand and visualise it. Then play about with the figures adding in some overpayments early on. Anticipate interest rates going up - which they will at some point. They certainly won't get any lower.

I took the gamble on of a short (2yr) fix at the lowest possible rate. I could have fixed for longer, but I'd be paying a higher rate of interest. Thinking being that as long as I'm overpaying by at least the equivalent amount of interest, I'm no worse off. I've managed to overpay significantly more so far, but it might not be sustainable as I need to spend some money on the house (new doors etc). Just hoping that rates haven't risen before I can get another fix.

PistonBroker

2,664 posts

241 months

Monday 17th July 2017
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I've always worked to a principle that you pay back an extra £1 for every £1 you borrow but, as I've been thinking that since we bought our first house in 2002, I suppose it needed updating to £1.50!

As others have said, if I was that nervous about the SVR and not getting an affordable deal, I'd fix in for longer than 2 years. I didn't have much choice last time our fix came to an end as I'd been self-employed just about 6 months. My existing lender offered me a 2-year and a 4-year fix and I took the latter to be on the safe side.

That was the first time I'd come to an end of a fix and wasn't moving house so it was a new experience for me. It was so easy just phoning up my existing provider and getting a new deal from them - well, after all, they recently gave Top Cat a mortgage :-p - that I'll do that first next March and then see if there's anything else out there where the numbers stack up. So I'm not sure nearing the end of a fix is all that bad, tbh.

rufusgti

2,555 posts

207 months

Monday 17th July 2017
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I was chatting to a lad in work today about mortgages. I asked if he could afford the loan he's considering if rates hit 5%. He literally laughed and said that's never going to happen. The length of his mortgage will be 35 years. He's 24, and is of the belief that mortgage rates won't hit 5% anytime within the life of his mortgage.
Ballsy!

DonkeyApple

62,631 posts

184 months

Monday 17th July 2017
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He might be right. His rate might go straight from 4 to 6 and skip out 5% alltogether. biggrin

Only the first phase of upward movement will be scheduled and controlled. Once it gets underway everyone's just along for the ride and rate changes cease to be preemptive or even reactionary but just plain chasing hard to get st under control before the country implodes and fully defaults.

James_B

12,642 posts

272 months

Monday 17th July 2017
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rufusgti said:
I was chatting to a lad in work today about mortgages. I asked if he could afford the loan he's considering if rates hit 5%. He literally laughed and said that's never going to happen. The length of his mortgage will be 35 years. He's 24, and is of the belief that mortgage rates won't hit 5% anytime within the life of his mortgage.
Ballsy!
Did you ask him why he thought this, and how many 30 year 5% caps he's shorted?

djc206

13,156 posts

140 months

Monday 17th July 2017
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rufusgti said:
I was chatting to a lad in work today about mortgages. I asked if he could afford the loan he's considering if rates hit 5%. He literally laughed and said that's never going to happen. The length of his mortgage will be 35 years. He's 24, and is of the belief that mortgage rates won't hit 5% anytime within the life of his mortgage.
Ballsy!
If I remember rightly when we applied ours was stress tested to at least 8% base rate so presumably even if he doesn't think he can afford it his mortgage company presumably will.

35 years, Jesus that would depress the st out of me.

princeperch

8,119 posts

262 months

Tuesday 18th July 2017
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in the meanwhile, anyone who has used their loaf has been aggressively paying down their debt.

In 2011, we had a 225k mortgage at 6.09pc (no fees) on a 250k flat fixed for 3 years with the coop, it was literally one of a handful of almost identical deals that were available to buy the place.

I then purchased my way out of that after paying down 20k in a year and getting the bank to value it at 265k after a year of ownership. I then went onto a 3.04 3 year fix with the Yorkshire building society (no fees).

paid that down as much as poss over the 3 years. sold the flat for 435k. purchased a house for 388k 2 miles up the road with a 2 year deal from Tesco bank at 1.59 fixed for 2 years - with a mortgage of 125k after having reduced the mortgage using some savings and some capital gains.

2 year from then I am now about to go on a 2 year fix with he Halifax. 1.65pc no fees £300 cash back, borrowing 100k over 18 years (I could have paid off 30k of that but we did some work to the house recently).

so hey presto , with very little effort on my part and I really do mean this, I've gone from having a 225k mortgage @ 6pc on a 250k 1 bed flat to having a 100k mortgage on a 600k house at 1.65 pc.

I fully intend to get the house paid off in the next 5 years and be mortgage free by the age of 37.

on the flip side, 2 of my good mates, who basically have the same income as me, kept their first 1 bed London flat, remortgaged it and rented it out, purchased a similar house to mine putting down 25pc (which they live in) , remortgaged it, purchased a stty 2 bed flat in Stevenage for rent etc. they both now have about £1m in assets and 550/600k of debt on them.

we have both had the same chances in the property game and have both gone down separate forks in the road. who will come off better? probably them. but I couldn't be bothered with the hassle and stress of having large mortgages I have to say..

bigandclever

14,046 posts

253 months

Tuesday 18th July 2017
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mjb1 said:
Sit down with excel and run it through a spreadsheet so you can understand and visualise it. Then play about with the figures adding in some overpayments early on. Anticipate interest rates going up - which they will at some point. They certainly won't get any lower.
This is my go-to spreadsheet for playing with mortgage numbers ... http://www.locostfireblade.co.uk/spreadsheet/Index...

I'm sure others are available but it works fine (I hope!).



XMT

3,941 posts

162 months

Tuesday 18th July 2017
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It really is shocking the number of people who never ever pay attention to this stuff. I say it all the time, people get far too happy with a monthly figure and ignore the rest.

I recently took out a mortgage and it clearly states the amount you pay pay for every pound borrowed but I also had a break down of each year.

I have a fixed 5 year deal and even that is shocking how much you pay in interest in the first 5 years of this super low rate (however I fully expected this anyway), after that is day light robbery (again fully expected).

Personally I am not worried because I am not planning to keep the thing long at all but it doesnt change the fact that far too many ignore the total they pay back. Utterly pointless your house going up 10-20 or 30k when your interest amount being paid is a daily shafting session

Edited by XMT on Tuesday 18th July 13:59