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    • MSE Callum
    • By MSE Callum 8th Jul 16, 11:46 AM
    • 161Posts
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    MSE Callum
    MSE News: 10 year 2.39% fix should you grab it?
    • #1
    • 8th Jul 16, 11:46 AM
    MSE News: 10 year 2.39% fix should you grab it? 8th Jul 16 at 11:46 AM
    The newspapers are full of stories about the Coventry Building Society's 10 year fixed rate mortgage deal, at 2.39%...
    Read the full story:
    '10 year 2.39% fix should you grab it?'

    Click reply below to discuss. If you havent already, join the forum to reply. If you arent sure how it all works, read our New to Forum? Intro Guide.
Page 1
    • Pincher
    • By Pincher 8th Jul 16, 11:59 PM
    • 5,842 Posts
    • 2,133 Thanks
    Pincher
    • #2
    • 8th Jul 16, 11:59 PM
    • #2
    • 8th Jul 16, 11:59 PM
    I was on BOE+1.75%, so was on 2.25% for about seven years, from 2009. Now they are talking about dropping BOE rate further, so maybe 1.85% , if I hadn't sold.

    I wonder what the Japanese pay, for mortgage.
    What happens if you push this button?
    • gadgetmind
    • By gadgetmind 9th Jul 16, 9:04 AM
    • 10,559 Posts
    • 8,311 Thanks
    gadgetmind
    • #3
    • 9th Jul 16, 9:04 AM
    • #3
    • 9th Jul 16, 9:04 AM
    Give recent events, we're likely to see a lot of volatility in both interest rates and inflation, and we could see them moving in opposite directions.

    If a mortgage was a significant chunk of my outgoings, I'd be looking to fix right now.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • amnblog
    • By amnblog 9th Jul 16, 10:19 AM
    • 8,844 Posts
    • 3,362 Thanks
    amnblog
    • #4
    • 9th Jul 16, 10:19 AM
    • #4
    • 9th Jul 16, 10:19 AM
    I was on BOE+1.75%, so was on 2.25% for about seven years, from 2009. Now they are talking about dropping BOE rate further, so maybe 1.85% , if I hadn't sold.

    I wonder what the Japanese pay, for mortgage.
    Originally posted by Pincher
    Don't the Japanese, and their parents, and their grandparents pay for a mortgage.
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • Pincher
    • By Pincher 9th Jul 16, 1:59 PM
    • 5,842 Posts
    • 2,133 Thanks
    Pincher
    • #5
    • 9th Jul 16, 1:59 PM
    • #5
    • 9th Jul 16, 1:59 PM
    Assuming I have a house that is worth 1miilion, no mortgage.

    If they lend me 500k at 2.39%, ay 50% LTV, I then buy shares that pay 5% dividend, i.e. 25,000, on which I pay 7.5% dividend tax, so I have 23,125 . 2.39% interest on 500k is 11,950. Assuming interest only, that means I get 11,175 a year. Ten years later, sell the shares, pay it back. Ultimate stoozing.

    Drat, it's a day dream. They will never lend it to me.
    What happens if you push this button?
    • gadgetmind
    • By gadgetmind 9th Jul 16, 5:28 PM
    • 10,559 Posts
    • 8,311 Thanks
    gadgetmind
    • #6
    • 9th Jul 16, 5:28 PM
    • #6
    • 9th Jul 16, 5:28 PM
    I wonder what the Japanese pay, for mortgage.
    Originally posted by Pincher
    You can get a 35 year fixed deal on sub 1.5% and 10 year on 1.15%.

    Prices in Tokyo aren't far different to London with an average condo costing about 400k but this rises quickly in prime areas,
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • Pincher
    • By Pincher 9th Jul 16, 7:00 PM
    • 5,842 Posts
    • 2,133 Thanks
    Pincher
    • #7
    • 9th Jul 16, 7:00 PM
    • #7
    • 9th Jul 16, 7:00 PM
    You can get a 35 year fixed deal on sub 1.5% and 10 year on 1.15%.

    Prices in Tokyo aren't far different to London with an average condo costing about 400k but this rises quickly in prime areas,
    Originally posted by gadgetmind

    So, borrow 100million YEN for 1.15% for ten years, convert it into sterling at 1:130, giving 769,231. Buy some shares yielding 5%, which pays out 38,461 dividend a year, paying 7.5% tax, leaving 35,577.

    1.15% interest on 100miilion YEN is 1.15million YEN, which is 8,846.

    That is 26,731 spending money a year.

    Hopefully, the exchange rate goes back to 1:180 after ten years, so 100million YEN is only 555,555, so there is 213,676 leftover.

    I just need sterling to bottom, and somebody that will do a foreign currency mortgage.
    What happens if you push this button?
    • gadgetmind
    • By gadgetmind 10th Jul 16, 2:14 PM
    • 10,559 Posts
    • 8,311 Thanks
    gadgetmind
    • #8
    • 10th Jul 16, 2:14 PM
    • #8
    • 10th Jul 16, 2:14 PM
    It's called a yen carry trade, and it works brilliantly until something like this happens.

    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • Bernard Coleslaw
    • By Bernard Coleslaw 13th Jul 16, 12:44 PM
    • 624 Posts
    • 435 Thanks
    Bernard Coleslaw
    • #9
    • 13th Jul 16, 12:44 PM
    • #9
    • 13th Jul 16, 12:44 PM
    This mortgage product appears to be portable.


    So Martin's main concern - that you would need to pay a penalty if you moved house in the next tem years - doesn't seem to apply.
    Everyone needs something to believe in.

    I believe I need another beer.
    • vjking
    • By vjking 13th Jul 16, 1:30 PM
    • 1 Posts
    • 0 Thanks
    vjking
    My husband and I have just signed up to a 10yr fixed.
    No fees and we can port it if we move house.
    We went for a fixed as we like to know what our outgoings are.
    • SavingSteve
    • By SavingSteve 13th Jul 16, 10:09 PM
    • 476 Posts
    • 205 Thanks
    SavingSteve
    This mortgage product appears to be portable.


    So Martin's main concern - that you would need to pay a penalty if you moved house in the next tem years - doesn't seem to apply.
    Originally posted by Bernard Coleslaw
    Exactly, I cant believe he's not corrected this, and now this blatent falsehood is being linked to in the weekly email. Anyone would've thought this site was owned by a company that benefits from people regularly switching mortgages...
    • colinm
    • By colinm 17th Oct 16, 4:06 PM
    • 36 Posts
    • 8 Thanks
    colinm
    10 year deals worth it?
    I was trying to work out if it's cheaper to keep switching every few years or whether to lock in for 10 years whilst rates are low.

    For example, borrowing 100k over 10 years will cost a total of 114,000 including fees, with this Coventry 2.39% mortgage.

    I guess the main disadvantage is that towards the end of the term you're still paying a large sum of money each month whereas your mortgage will have reduced substantially.

    What I'm not sure about as it's hard to work out is what the potential savings would be to keep switching...of course it depends on interest rates over the next 10 years, but assuming they stay low, it's presumably cheaper in the long run to keep switching?

    Anyone got any thoughts?
    • marsman802
    • By marsman802 17th Oct 16, 4:16 PM
    • 528 Posts
    • 231 Thanks
    marsman802
    The lower your mortgage balance gets makes it less and less favourable to keep switching due to the fees involved outweighing the savings in interest periods during the term it covers.

    You would want to keep switching whilst it is saving you money however at some point you probably need to think about fixing for the long term to avoid overpaying further down the line.

    However there are soooo many different situations it is impossible to give you a perfect answer
    • colinm
    • By colinm 17th Oct 16, 4:27 PM
    • 36 Posts
    • 8 Thanks
    colinm
    Thanks for that marsman...understood - there are so many variables.

    I thought I'd just see what the monthly repayments would be if the loan amount and term were halved (ie. 50k over 5 years) and it's actually very similar and with the fees actually makes very little difference. So locking in for 10 years and providing certainty of your outgoings may be preferable to switching and paying fees (unless you keep getting fee free).

    Maths was never my strong point but of course this makes sense. I had it in my mind that if you halved your mortgage in 5 years and then moved for the final 5 years, the cost of the repayments would also halve (roughly). But of course as it's all on %s then it doesn't make a huge difference.
    • getmore4less
    • By getmore4less 17th Oct 16, 5:24 PM
    • 26,241 Posts
    • 15,785 Thanks
    getmore4less
    It is really easy to do the comparison between a ten year and multiple alternatives using todays data. Say 2x5 or 5x2

    A bit tedious if just using a regular calculator but not that hard to spreadsheet.

    If I get 30mins I will do the above 2 options with the same lender.

    The key with a lower rate is paying the same and reduced debt.

    The break even on a fee no fee 7y with Barclays was 35k on one I checked recently.
    Last edited by getmore4less; 18-10-2016 at 6:08 AM.
    • getmore4less
    • By getmore4less 19th Oct 16, 7:21 AM
    • 26,241 Posts
    • 15,785 Thanks
    getmore4less
    OK got some time to do them

    lets look at the offering for a remortgage by Coventry for comparison.

    http://www.coventrybuildingsociety.co.uk/mortgages/remortgaging.aspx

    every deal 2,5 7 are cheaper with or without the fess than the 10y deals.

    all the deals qualify for free legal and valuations.

    fees are 0 or 999 and they also offer a flex(unlimited overpayments with a 499 fee on a 2y and a 5y. which may be handy for those that can overpay by more than the 10%pa.

    looking at the 10y the rates are 2.39% 999 fee or 2.69% 0 fee

    the break even fee/nofee over the 10y term are quite low around
    38k interest only
    69k 10 year full term
    other longer full terms will be between those.


    looking at 100k over a 10y(947pm) and 20y(530pm) term after 5y and 10y
    (rounded to the nearest 1)
    100,999 @ 2.39%
    10y term(947pm)
    5y 53,515
    10y 10 (947 is a tiny underpayment)
    (113,650 total to pay off the debt)

    20y term
    5y 80,063
    10y 56,473

    .......................................
    OK lets looking at the first alternative - 2 consecutive 5y deals
    (checking the retention deals there are none better than the standard 50%LTV on the link above)

    5y are 1.94% 999 fee or 2.09 0 fee.
    break even over 5 years fee/nofee around
    75k i/o
    180k 10year full term


    again over 5y and 10y on 10y and 20y terms paying the same as the 10y fix

    100,000 @ 2.09% (no fee is cheaper than the fee in both cases)

    10y term(947pm)
    5y 51,165 (2300 ahead so far
    10y 0 paid of 3 months early
    (110,602 total payments saving just over 3K over the full term)

    20y term(530pm)

    5y 77,515 (2.5k ahead)
    10y 52,556
    nearly 4k ahead at year 10.


    Overpayments will make the saving smaller.
    those sorts of savings may not be enough to go with the 5y options.
    In per month numbers to pay off at term 10y or 20y is a 20pm saving 2400 over 10 years so matching the 10y payment improves the savings.

    Another measure is the breakeven interest rate at year 5.
    4.20% 10y term thats 2% more than the current 5y rate.
    3.19% 20y term only 1% more than the current 5y rate



    -----------------------------------------------
    the 2y fixes are 1.49% 999 fee 1.79% 0 fee

    breakeven over 2years fee/nofee
    79k i/o
    186k 10y

    100k with no fees on the 2y amounts owing at each change
    full table same payments as before (947,530)

    -----------10y term---------|-----------20y term -------
    year----10y fix---2y fix----|---10y fix-----2y fix
    0y.....100,999..100,000...|..100,999..100,000
    2y......82,683...80,520...|...92,923...90,701
    4y......63,471...60,330...|...84,452...81,064
    6y......43,319...39,406...|...75,568...71,076
    8y......22,181...17,719...|...66,248...60,724
    10y.....10.......0(-5m)...|...56,472...49,995


    the basic rules when looking at the savings are
    bigger the difference in rates the more you save.
    owe more, save more
    pay more, save less

    The max savings are on big mortgage, interest only.

    BUT on higher payment profiles(shorter term) the profile can take higher rate changes so although the savings are smaller on another measure they are safer

    .....................................

    Crunching the numbers is relatively easy, interpreting them and understanding what the risks really are is the harder bit.
    many think fixing is the low risk/risk adverse option because they only look at the risk of the payment changing and not others like the risk of paying to much.

    what you can get from them is a measure of the cost of taking a long term fix based on todays data should nothing change, the next bit to do is look at what rate changes would change the outcome, I did it for the 2 x 5y option as that has only one data point at 5y.

    Coventry also have a 7y fix at 1.99% with a 999 fee

    At y7 that would put a 100k mortgage ahead at y7 3675(10y term) and 4620(20y term)
    • colinm
    • By colinm 19th Oct 16, 6:11 PM
    • 36 Posts
    • 8 Thanks
    colinm
    Thanks that's really helpful getmore - I need to read it a few more times but very useful to see those comparisons. Like you say no-one can predict what will happen in the next year yet alone the next 5-10 years...but all being equal it certainly looks like a 10 yr lock in isn't the best option.
    Thanks again I found this very helpful and I'm sure others will!
    • getmore4less
    • By getmore4less 19th Oct 16, 9:44 PM
    • 26,241 Posts
    • 15,785 Thanks
    getmore4less
    I think many go into deals without a clue what they are mitigating.

    the temptation of my payment will be the same for X years seems to put the rose tinted specs on when in many cases they could achieve the same and have a smaller debt at the end.
    • AnotherJoe
    • By AnotherJoe 20th Oct 16, 9:59 AM
    • 4,118 Posts
    • 4,147 Thanks
    AnotherJoe
    I think many go into deals without a clue what they are mitigating.

    the temptation of my payment will be the same for X years seems to put the rose tinted specs on when in many cases they could achieve the same and have a smaller debt at the end.
    Originally posted by getmore4less
    Agreed, you often see soemthing like "I like to know what my payments will be" (I think the OP said that) whereas my position is "I'd like to know that I'll be paying much less than had i bought a very long fix". With most of the deals I've seen posted here, unless rates rise very high and very quickly after you start, shorter term fixes work better as theres usually ample time to fix should it look like rates will rise longer term.
    Last edited by AnotherJoe; 20-10-2016 at 10:03 AM.
    • getmore4less
    • By getmore4less 20th Oct 16, 10:14 AM
    • 26,241 Posts
    • 15,785 Thanks
    getmore4less
    Agreed, you often see soemthing like "I like to know what my payments will be" (I think the OP said that) whereas my position is "I'd like to know that I'll be paying much less than had i bought a very long fix". With most of the deals I've seen posted here, unless rates rise very high and very quickly after you start, shorter term fixes work better as theres usually ample time to fix should it look like rates will rise longer term.
    Originally posted by AnotherJoe
    the key is that the lower rate should not mean lower payment, you pay the same as if you had the long rate and end up with a smaller debt.

    That is one of the best ways to mitigate rate rises.

    As the 2x5y over 10y option shows, 20pm buys you 2% at year 5.

    could do the same calc for the 2y.

    I wonder if the "My client said they wanted the security of a fixed payment" is the easy get out for the compliance and protection from miss selling that results in many ending up with fixed rather than the other options which often could save them loads of money.
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