Remortgage in current climate

[Alrey87]

Possibly convenient that I’m about to remortgage before the economy collapses...means I get a strong house valuation and super low rates

I’m at 56% LTV. At this point reducing my LTV below 50 isn’t offering any better rates.

I’m assuming after this corona disaster house prices will fall and interest rates gradually increase. With this in mind would a 10 year fix at 2.09% be sensible? I can get a 2 year at 1.19 or a 5 year at 1.44. I’m assuming 5 years onwards could possibly be the peak of high rates so may be nice to average out the whole period.

Only concern would be if I looked to move during that time I’m not sure how complicated that gets.

[Sarnie]

Alrey87 said:

Possibly convenient that I’m about to remortgage before the economy collapses...means I get a strong house valuation and super low rates

I’m at 56% LTV. At this point reducing my LTV below 50 isn’t offering any better rates.

I’m assuming after this corona disaster house prices will fall and interest rates gradually increase. With this in mind would a 10 year fix at 2.09% be sensible? I can get a 2 year at 1.19 or a 5 year at 1.44. I’m assuming 5 years onwards could possibly be the peak of high rates so may be nice to average out the whole period.

Only concern would be if I looked to move during that time I’m not sure how complicated that gets.

Irrespective of the rate offered, I'd never advise anyone to take a ten year fixed rate. We've remortgage more people OFF ten year fixed rates than we have put them on them.......paying thousands in ERC's in the process.........ten years just seems like too long to commit to a product..........house moves, increased family, reduced family, relationship splits, job moves, family issues, property extension........all reasons that you may not actually be able to plan for but all things that could need you to have to redeem your mortgage........

[anonymous-user]

Alrey87 said:

I’m assuming after this corona disaster house prices will fall and interest rates gradually increase.

Forget percentages - focus on the potential cash cost. That's the cash cost of getting into and getting out of a fix versus the cash cost of an interest rate increase.

Alrey87 said:

With this in mind would a 10 year fix at 2.09% be sensible? I can get a 2 year at 1.19 or a 5 year at 1.44.

Personally, I don't see the point of relatively short fixes. The cash cost of a rate increase for a couple of years is likely to be very small.

Alrey87 said:

Only concern would be if I looked to move during that time I’m not sure how complicated that gets.

Precisely. It all comes back to cost vs the quality of your crystal ball.

Remember, if the industry wasn't making money out of selling fixes they wouldn't be doing it. The question is whether you think it's worth paying (now or in the future) for what they're selling.

[Alrey87]

Unless I’m missing something obvious the cost of a fixed is way cheaper over say a 2 year period....1000 average product fee but savings from an even lower rate. Going onto the variable rate sees my total payment over 2 years increase by £4k.

[66Elan]

Sarnie said:

Irrespective of the rate offered, I'd never advise anyone to take a ten year fixed rate. We've remortgage more people OFF ten year fixed rates than we have put them on them.......paying thousands in ERC's in the process.........ten years just seems like too long to commit to a product..........house moves, increased family, reduced family, relationship splits, job moves, family issues, property extension........all reasons that you may not actually be able to plan for but all things that could need you to have to redeem your mortgage........

Sorting through some old 1993 mortgage files that I have in storage I recently came across this Britannia 9.99% 10 year fixed rate brochure. Was a good rate in 1993 but not so good by 2003..

[Sarnie]

66Elan said:

Sarnie said:

Irrespective of the rate offered, I'd never advise anyone to take a ten year fixed rate. We've remortgage more people OFF ten year fixed rates than we have put them on them.......paying thousands in ERC's in the process.........ten years just seems like too long to commit to a product..........house moves, increased family, reduced family, relationship splits, job moves, family issues, property extension........all reasons that you may not actually be able to plan for but all things that could need you to have to redeem your mortgage........

Sorting through some old 1993 mortgage files that I have in storage I recently came across this Britannia 9.99% 10 year fixed rate brochure. Was a good rate in 1993 but not so good by 2003..

Old school 0.75% arrangement fee too................£500k mortgage would cost you £3,750 in arrangement fee alone........this was common on all product back then......and people moan about £999 these days......

[66Elan]

Sarnie said:

Old school 0.75% arrangement fee too................£500k mortgage would cost you £3,750 in arrangement fee alone........this was common on all product back then......and people moan about £999 these days......

I cannot remember too many £500k mortgages in 1993 - a new 4 bed detached in Essex (Clacton-on-Sea) was £74,995 !!

[I 8 a 4RE]

Sarnie said:

Irrespective of the rate offered, I'd never advise anyone to take a ten year fixed rate. We've remortgage more people OFF ten year fixed rates than we have put them on them.......paying thousands in ERC's in the process.........ten years just seems like too long to commit to a product..........house moves, increased family, reduced family, relationship splits, job moves, family issues, property extension........all reasons that you may not actually be able to plan for but all things that could need you to have to redeem your mortgage........

Shock horror, the industry that makes money of your transaction (typically by size) wants you to do ... more transactions.

Say what you want, but up to COVID-19 locking in for 10 years based on current low rates was actually financially very savvy as rates were on the way up.


In addition to this, arrangement fees when remortgaging every two years (even if added to the loan) will significantly increase the TCO of the loan. (Not to mention the opportunity cost and hassle of providing all documentation.)

[I 8 a 4RE]

OP, what’s the size of the outstanding mortgage?

This should be easy to model.

[Sarnie]

66Elan said:

I cannot remember too many £500k mortgages in 1993 - a new 4 bed detached in Essex (Clacton-on-Sea) was £74,995 !!

Indeed, was just illustrating the difference in how fees were/are presented between then and now.

[Sarnie]

I 8 a 4RE said:

Shock horror, the industry that makes money of your transaction (typically by size) wants you to do ... more transactions.

Say what you want, but up to COVID-19 locking in for 10 years based on current low rates was actually financially very savvy as rates were on the way up.


In addition to this, arrangement fees when remortgaging every two years (even if added to the loan) will significantly increase the TCO of the loan. (Not to mention the opportunity cost and hassle of providing all documentation.)

Whats your "financial savvy" based on?

Mine is based on having to unwind numerous clients who thought they were "financially savvy" and tying themselves into ten year fixed rates, only to then have to remove off them for various reasons when they needed to move or remortgage, incurring thousands and thousands and early repayment charges.

[Alrey87]

I 8 a 4RE said:

OP, what’s the size of the outstanding mortgage?

This should be easy to model.

106,880

[fourstardan]

10 year you are mad.

Rates won't go up for at least 12-18 months I expect.

I'd be looking at some short term reductions based on cost of food, living etc being more post lockdown.

I do wonder what the real cost of remortgaging really is.

[anonymous-user]

fourstardan said:

I do wonder what the real cost of remortgaging really is.

Good lad, that's exactly the right way to be thinking IMO.

The headline rates might look attractive but watch out for the fees and charges, especially at the back end.

[Alrey87]

Well it’s not that hard to calculate, add the fee to the cost of 24 payments for a 2 year fix, compare that to staying on the same rate or variable rate without the fee over the same 24 months?

[anonymous-user]

Don't forget the penalties if you need to get out early - as many people do. This is the same point Sarnie was making about 10 years being "too long". Many people don't even make it to 3 or 5. And if you're only fixing for 10 minutes, why bother?

I'm aware this line of thought divides opinion. The key thing is to make sure you've mulled it over carefully before you sign on the line.

[Chicken Chaser]

I'm in a similar boat. 3 products on mine through moving and extending. One tracks variable BR +2% (£54k), one at 2.64% (£31k) running out next month and other on a tracker which can now be renegotiated at 1.7% (£49k). LTV currently under 60% so should be able to get a decent rate.

I was thinking of either going on another tracker with the rate being so low or see what a max 5 year fixed rate would get me.

[I 8 a 4RE]

Alrey87 said:

106,880

Just did this on the back of a napkin:
These calculations are based on:
- Interest Only mortgage (which I assume this isn't)
- Interest rates not increasing for the next 10 years (considering they are at a historic low now, they probably will)
- Arrangement fee has been assumed at £999 only (typically higher, especially considering solicitor fees).

TCO 10 year option you provided: £23,336
TCO 5 year option you provided: £17,388
TCO 2 year option you provided: £17,713

The 5 year option is already cheaper.

Add to this:

- You will be paying off principal, this will reduce the benefit of a low-rate, high-risk 2 year note.
- Interest rates are likely to go up in the coming 10 years, so when you remortgage your perpetual 2 year note, terms keep getting worse potentially at some point worse than the current 10 year rate.
- Inflation will probably also get to the Arrangement Fee (which you pay 5 times over a 10 year period on 2 year notes) driving those costs up even higher.

If I was in your shoes, I would opt at least for the 5 year note and try to calculate the real costs of the 10 year note including the scenario where you obviously pay off principal.

[cherie171]

rockin said:

Don't forget the penalties if you need to get out early - as many people do. This is the same point Sarnie was making about 10 years being "too long". Many people don't even make it to 3 or 5. And if you're only fixing for 10 minutes, why bother?

I'm aware this line of thought divides opinion. The key thing is to make sure you've mulled it over carefully before you sign on the line.

I'd second this. Unless you have a crystal ball, and know exactly what you're going to be doing in 10 years, then don't do it.

We signed up for a 5 year fixed at 1.99% just over 2 years ago, believing that nothing would change. We're now separated, and in the process of selling our joint home and I'm buying solo. Due to the ERC, I've had to port a proportion the balance of the existing mortgage rather than finding myself a new mortgage at a lower rate. A lower rate would be nice to make the monthly payments lower, but that doesn't compare to ringing the ERC from over £4k to just over £1k.

Don't take anything for granted, you can't know where you'll be in 10 years time.

[Sarnie]

cherie171 said:

Don't take anything for granted, you can't know where you'll be in 10 years time.

^This.

The post above is all well and good, breaking numbers down into total costings..........but it misses out one key factor.........LIFE......and life isn't lived out on the back of a napkin or on a spreadsheet..........