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[MSE Dan]

This is the discussion area specifically for

Should I Ditch my Fix?

This is part of the Fixed vs Discount Q&A Guide, and includes the quick Should I Ditch my Fix? calculator.

Please click reply to discuss.

NB. If you wish to discuss the main content of the Fixed vs Discount Mortgages Q&A guide, please use its own discussion thread

[Gorgeous George]

It is important to ensure that you switch to a suitable product. If you chose a fixed rate before it is likely that you should choose a fixed rate again. I think this should be added to the disclaimer on the calculator.

Now is not the time to switch to a tracker. The BofE base rate cannot fall much more and you will only track upwards.

The calculator is useful and should help those considering switching but adding the arrangement fee into the equation would make it more useful.

GG

[minimike2]

What a farce. Dont get me started.

Yet another article that doesnt even consider suitable advice.

GG is exactly right in post #2.

I cannot believe that this "Ditch your Fix" thing is STILL ongoing. If I was doing this kind of campaign the FSA would have slapped me down by now, being a regulated broker n'all.

[MSE Dan]

Hi folks,

The idea of that section of the article, is to go through the issues of whether ditching a fix is worth it, as it is a question we are getting asked A LOT. We arent part of a campaign telling people to do one thing or another, simply to get people thinking about whats best for them financially (and showing the right places to get help in those decisions).

As the article repeatedly says, the calculator is a quick guide, and anyone serious about taking it further and working out whether they should consider doing this should really be going to a broker.

Dan

[doogstoos]

This is a question that's very close to my wallet at the moment.

I am about to complete on a house. Ive taken out a 10 year fix rate with halifax at 5.3%.

I could of course get a tracker at approx 3.5 that would shave approx £140 off my monthly payments, but my payments on the fixed rate are fine for me + I think that the UK is in store for some inflation in approx 2 years time. In an inflationary environment interest rates will have to rise, especially with the slow collapse of sterling that we are currently witnessing.

My thinking therefore is that it's best to lock in now, and take the extra hit of £140 a month with the expectation that long term the 10 year fix will work out better and once I come off my tracker (if I were to take it) in 2 years long term fixes will be significantly higher because of the scenario outlined above.

Plus of course I get peace of mind and dont have to worry about interest rates etc for the fix's duration i.e. 10 years.

[--_Adam_--]

Thanks guys,

The tool is useful in providing a base line of what I will need to achieve in order to make any cost savings. It definitely saves me having to do lots of calculations in my head!

Awesome, just what I've been looking for.

Adam

[MSE Martin]

Originally Posted by minimike2

What a farce. Dont get me started.

Yet another article that doesnt even consider suitable advice.

GG is exactly right in post #2.

I cannot believe that this "Ditch your Fix" thing is STILL ongoing. If I was doing this kind of campaign the FSA would have slapped me down by now, being a regulated broker n'all.

Of course shoudl I ditch my fix is ongoing yet there's no campaign. We're not suggesting anyone does ditch their fix. We're answering a question which is currently one of the dominant ones people are asking.

The answer for the majority of people, as we've said before is NO. And indeed the article says

"This leaves many locked into fixed rates that are a good few percentage points above those on tracker deals, and unsurprisingly asking "can I ditch my fix?" Yet for many the answer is that doing so is UNLIKELY to save you cash."

Plus most people when trying the calculator will end up with a negative interest rate as the answer showing them that there's no point. There's no more powerful way to explain that to listen to the question - to not answer it doesn't help anyone.

As for not considering suitable advice - the whole piece is about considering suitable advice, the entire stance is if in the rare event you may be able to save, then get the numbers done properly and go through a mortgage broker.; its said by the calculator, the text around, the start of the piece and more I don't recognise your description of the guide; I find it quite difficult to understand your perspective.

The knee jerk reaction to an educative piece most bizarre. Im also not going to allow this discussion area to follow the way of previous ones with a few people sniping and taking it off track. However if feel there is a tangible mistake in the guide, or a factual error, or an explanation missing - then please do tell - it would be easier if you could copy the relevant piece of the guide and note the problem.

Martin

[cplatten]

Thank you Martin. I have found the calculator very useful as I have spoken to my bank and my IFA in the last 2 weeks. Although we have a high redemption penalty I was amazed to see that we could still benefit from switching to a lower fixed rate. Though I have to say that your calculator came up with a rate of 2.79% needed and NatWest told me last week that I could save approx £2000 with a rate of 3.49%.

But I am not going to quibble. The calculator is just for a ballpark figure to indicate whether it is even worth going down the arduous path in the first place.

[stubtoe]

Hi (first post by the way),

I've looked at switching my fixed rate to a lower one which could save me £100 to £200 per month on paper. But, and its a big 'but' (which no one else seems to have pointed out), is that these new lower fixed rates are only available for people with lots of equity in their properties i.e. 60% to 70% Loan To Value (LTV).

I used to have that kind of LTV, however, since property prices have fallen approximately 20% in the last year or two where I live (may be more or less in your area) my LTV is now nearer 95%. So its only those people lucky enough to still have a low LTV, even after property prices have fallen, that can take advantage of all these 'fantastic' fixed rates out there. And who are these people? Well, its not us young families who have only been on the property market for a few years and could do with cheaper mortgage payments in this 'credit crunch', its our parents who have had their houses for 10, 20, 30 years with loads of equity in them and more disposable income anyway...

So, before you get too excited just make sure that you meet all the criteria for the really low rate your looking at switching to...

[StevenClark7]

I was caught out as my northern rock mortgage finished in August last year. At the time interest rates were rising and the variable rate for northen rock was over 7%.
I fixed my £246000 mortgage with the Halifax at 6.89% and switched to interest only.

Over the past few months the low interest rates have been playing on my mind so I decided to contact the bank and move to the standard variable rate which was 4% and is now 3.5%.

This has reduced my monthly payments from £1410 to £860 and then to £760ish when the 1/2% drop kicks in.
The bad news is this cost me £7,400 in penalties as my fixed was over 3 years. This was added onto the mortgage.
Overall that’s a saving of £650 per month so if the rate doesn’t go up over the next year i am on a winner.

They offered me a tracker but I didnt want to be locked in and get stung with any more bank fees. The best tracker I could get would only shave another 0.5% off the monthly bill which equates to about £100 per month and for the privilage they would have charged me £1000.

I don’t feel entirely comfortable on a variable rate mortgage but with the big numbers that could be saved each month it seemed to right thing to do. My worst case scenario is when the rate start to go up is that i am unable to fix again

If this calc was around a few months ago it would have given me a push to contact the bank sooner.

Just wanted to share my story

Steve

[Anon]

I am still deliberating - locked in at 5.63% for the next four years (only one year in) - all the talk at the time was rising mortgage rates and indeed, for a few months after we moved they did and stayed up, before the nosedive.

I had a lot of discussion on here and ultimately you have to make your own decision. Coming out of a fix to a tracker/variable is a gamble, particularly with the redemption and costs of getting a new mortgage, but could in my case save money over the original fix period (and the mortgage overall). Coming out of a fix and going back onto a lower fix (taking into account all fees etc) could guarantee a saving if the rate is right.

As advised, do the sums and do your research, but the longer you wait to make a decision, the less time you may be saving money before the rates start to rise again (should you decide to ditch and switch).

Good luck

Anon

[Me & the Dog]

Hi,

Thanks for the aricle on the "should I ditch my fix?" I took on a new deal last year @ 6.4% fixed till 2011 and have been fretting ever since thinking that I'd done the wrong thing.

Anyway I probably did do the wrong thing, but considering that I didn't/don't have much equity in the house and that my credit rating wasn't in tip top condition I feel pleased that I even managed to get another deal.

Anyway this article has prompted me to investigate further, although given the drawbacks above I think I may draw blanks, but it's certainly worth a look around. Any money is better of in my back pocket rather than the banks.

Thanks again

[Gorgeous George]

I'm surprised brokers are getting upset. Anything to churn mortgages a little quicker must be good for business.

And if people move to inappropriate mortgages, they'll be switching back when rates rise - more churn.

Maybe all mortgage rates should be fixed - like personal loans - maybe this would save us from huge swings in mortgage rates as lenders price in risk (and opportunity).

GG

[SunnySusie]

I also feel the article sends out a mixed message. If people have fixed it's because they want surety. So the answer to whether you should ditch or switch should have nothing to do with math and potential short term saving? Isn't there a chance that people might use the calculator, take it as advice they should switch, and then by the end of the year, when the money printing has led to inflation and a ramping up of the rates... (maybe)

I realise the article tries to make this point but the emphasis comes across as possibly unintended (imo).

I think the bet analogy is good. That sums up the way I feel. No hard feelings about my fix which is actually pretty low anyways. So if it is not obvious - my answer is NO DEAL!

Good luck with your mortgages people

[tyllwyd]

I came away from the calculator feeling confused - we have another eight years to go on our fixed rate, and thirteen years to go on our mortgage. The calculator didn't ask for those figures, so was the calculation based on a new 25 year mortgage term (which we absolutely wouldn't consider)? Wouldn't that make a significant difference to the result?

And it recommended a new rate, but with no indication of whether this would be fixed or tracker, and how long it would have to stay at that rate for us to be in a better situation. Doesn't that fundamentally affect the answer?

I would have liked to have been given a lot more information on what assumptions were used to generate the figure given, otherwise it is pretty meaningless.

In our specific case - we're fixed at 5.18% for another eight years. The calculator said we'd save at 4.03%. So does that mean 4.03 for the rest of the mortgage term, or a two year fix, or a five year fix etc - if we were going to give up an eight year fix, could we save enough over a two year fix to make up for the redemption fee? Without that information, how do we know what we are looking at?

(And thinking about it a bit more, we originally started this mortgage on a 15 year term not 25 years, so I'm wondering if the calculator wouldn't work for us in any case? If so, shouldn't there be a warning given?)

[dillydallydo]

Just looking for some advice on the ditching the fix puzzle...

We currently have 3 years left on a fixed rate of 5.19%, and £288157 of mortgage. which costs us £1784 per month. Our early repayment charge from this mortgage (with HSBC) would be approx £8644....

The calculator stated that we would need a rate of 4.72% or lower to save.

....so, we can get a new mortgage for £296802 (including the ERC) at a 2yr discount rate of 2.99% at a monthly cost of £1406, then goes onto variable rate after 2yrs.

As this is over 2yrs, and not the 3yrs we've got left on our current fixed rate, how does it compare??

This seems worthwhile, but I can't get my head round the huge ERC being added to our mortgage, should I just get over it???

Any advice???

[MarkyMarkD]

It's easy for me to answer tyllwyd's question, but I should not really have to because the calculator ought to be clearer!

The calculator assumes that the new rate you are achieving will apply throughout the remaining fixed rate term.

That means that EITHER the new product has to be fixed for the same remaining fixed rate term - in which case the savings are absolute and guaranteed, and you should DEFINITELY ditch and switch if the rate is low enough - or that you are taking on an interest rate risk by moving to either a shorter-term fix or a variable rate of some sort.

The real gripe I have with the calculator is that, although the article correctly points out that it's necessary to consider whether your existing product has a good "revert" rate, and compare that to the new product's "revert" rate, the calculator ignores this completely.

Very many existing mortgages will revert to low tracker rates - maybe as low as BBR+0.75%, many at BBR+1.00% or so - which simply cannot be achieved on the sort of bargain short-term fixed rates currently on offer.

So the likelyhood is that someone following the calcultor's advice will save money over the fixed period, but then be rueing their stupid decision when they end up reverting to a higher SVR or tracker at the end.

My simplistic example would be:

- currently fixed at 5% for 2 years reverting to BBR+1.00% with a 3% ERC
- best rate available maybe 3.4% for 2 years reverting to SVR (current 3% above BBR) with all switching costs paid for

The calculator will say that this is a good switch because the "break-even" new rate is 3.5%. But actually that would be a stupid switch because after the 2 years, the revert rate is relatively poor.

The calculator would be far better if it incorporated a question "what is your revert rate" and THEN told you not to switch if you would be throwing away a great revert rate, just for the sake of a few quid saving over the next few years.

[Wise Guy]

I have also got a 10 year fixed mortgage at a rate of 4.89%. We have another 6 years remaining. Like yourself we decided to get a 10 year fix so we would know how much our repayments will be.... our family is growing and it gave us peace of mind! When we initially went down the 10 year fixed route it was relatively new on the market and peole thought we were MAD! We have decided to keep our mortgage with our current lender but to move money from our ISA account to our mortgage account. We have an amortisation table and at the end of the fixed term it has made a significant dent in our mortgage. If an emergency arises we can get the money credited to our current account within a week....doogstoos you are not alone in your thinking!

I found the Should I Ditch my fix mortgage calculator not very useful/helpful for my scenario.....

Originally Posted by doogstoos

This is a question that's very close to my wallet at the moment.

I am about to complete on a house. Ive taken out a 10 year fix rate with halifax at 5.3%.

I could of course get a tracker at approx 3.5 that would shave approx £140 off my monthly payments, but my payments on the fixed rate are fine for me + I think that the UK is in store for some inflation in approx 2 years time. In an inflationary environment interest rates will have to rise, especially with the slow collapse of sterling that we are currently witnessing.

My thinking therefore is that it's best to lock in now, and take the extra hit of £140 a month with the expectation that long term the 10 year fix will work out better and once I come off my tracker (if I were to take it) in 2 years long term fixes will be significantly higher because of the scenario outlined above.

Plus of course I get peace of mind and dont have to worry about interest rates etc for the fix's duration i.e. 10 years.

[tyllwyd]

Originally Posted by MarkyMarkD

It's easy for me to answer tyllwyd's question, but I should not really have to because the calculator ought to be clearer!

The calculator assumes that the new rate you are achieving will apply throughout the remaining fixed rate term.

Thanks! ... but the calculator doesn't ask for the remaining fixed rate term, it asks how long any ERC will apply, which confused me. Surely these two aren't necessarily the same?


I still have the other problem - obviously I can't switch to a new eight year fix
because they aren't offered. So surely the rate I am looking for to beat my current fix plus ERC will be significantly different if I am looking to switch to a two, five or ten year fix? If I didn't realise, and took a two year fix at the maximum rate suggested by the calculator, wouldn't I be in danger of losing out?

[sizla]

My elderly parents have a £60K mortgage on a property costing £260K. They are with Abbey for a 5 year term (2 years fixed at 5.09% before reverting to SVR). Redemption fee is £2500. Monthly capital repayment is £1150

Barclays are tempting them with this same offer. "Swicth to us and pay the redemption fee and we could possibly save you money blah blah blah"

the calculator says seek a mortgate rate of 2.25% or lower. Although the banks are offering nowhere near these level of interest rate deals.

Any advice would be greatly welcome