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    • copperclock
    • By copperclock 27th Feb 17, 1:13 PM
    • 144Posts
    • 150Thanks
    copperclock
    How do you decide how long to fix?
    • #1
    • 27th Feb 17, 1:13 PM
    How do you decide how long to fix? 27th Feb 17 at 1:13 PM
    I know there are a lot of questions about this on this forum. I am not asking a specific question about my own circumstance, but I am interested in how you go about making the decision on whether to fix and for how long.

    What maths do you use?

    What variables do you change?

    Do you take into account overpaying?

    How does LTV affect your calculations and future estimates?

    What economic factors do you take into account?

    I have a method, but I am sure I am leaving things out!
Page 1
    • ACG
    • By ACG 27th Feb 17, 1:55 PM
    • 14,710 Posts
    • 7,364 Thanks
    ACG
    • #2
    • 27th Feb 17, 1:55 PM
    • #2
    • 27th Feb 17, 1:55 PM
    Do you plan on moving? If so, when. That would normally dictate the maximum you fix for.
    Do you want the cheapest fixed or to pay a little more for longer term surity in what your payments will be?

    Those are 2 of the big ones for me.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, 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.
    • copperclock
    • By copperclock 27th Feb 17, 2:42 PM
    • 144 Posts
    • 150 Thanks
    copperclock
    • #3
    • 27th Feb 17, 2:42 PM
    • #3
    • 27th Feb 17, 2:42 PM
    Do you plan on moving? If so, when. That would normally dictate the maximum you fix for.
    Do you want the cheapest fixed or to pay a little more for longer term surity in what your payments will be?

    Those are 2 of the big ones for me.
    Originally posted by ACG
    Thank you. Yes, it definitely seems like they are the ones to start with.

    Assuming the answers are that they don't plan on moving and that their aversion to risk is middle-of-the-road, where do you go from there?

    When we got our mortgage, my method was to compare a 5y fix to a 2y fix +3y. With the 3 years being the variable. I then asked 'how high does my available interest rate have to be for the 3y period to mean I don't save money by taking a 2y fix?' Not sure if I have worded that in a way that makes sense.

    What am I missing when I am that simplistic?
    • getmore4less
    • By getmore4less 27th Feb 17, 2:58 PM
    • 28,392 Posts
    • 16,977 Thanks
    getmore4less
    • #4
    • 27th Feb 17, 2:58 PM
    • #4
    • 27th Feb 17, 2:58 PM
    Thank you. Yes, it definitely seems like they are the ones to start with.

    Assuming the answers are that they don't plan on moving and that their aversion to risk is middle-of-the-road, where do you go from there?

    When we got our mortgage, my method was to compare a 5y fix to a 2y fix +3y. With the 3 years being the variable. I then asked 'how high does my available interest rate have to be for the 3y period to mean I don't save money by taking a 2y fix?' Not sure if I have worded that in a way that makes sense.

    What am I missing when I am that simplistic?
    Originally posted by copperclock
    That's the way to do it.

    I did one today a 5y or 2y+3y and the rate change up over the 2 years was 0.59% based on todays 2,3,5 rates from same lender.

    2 rise of 0.25% in the 2 years still better off,
    3 or more and you are not.


    You have to use the estimated payment you will make not the contractual one for the rate/term

    Another advantage of the 2+3 is you get a window to overpay a lot ERC free which may be a factor.
    • copperclock
    • By copperclock 27th Feb 17, 4:02 PM
    • 144 Posts
    • 150 Thanks
    copperclock
    • #5
    • 27th Feb 17, 4:02 PM
    • #5
    • 27th Feb 17, 4:02 PM
    That's the way to do it.

    I did one today a 5y or 2y+3y and the rate change up over the 2 years was 0.59% based on todays 2,3,5 rates from same lender.

    2 rise of 0.25% in the 2 years still better off,
    3 or more and you are not.



    You have to use the estimated payment you will make not the contractual one for the rate/term

    Another advantage of the 2+3 is you get a window to overpay a lot ERC free which may be a factor.
    Originally posted by getmore4less
    When we chose our existing mortgage, one of the factors we took into account was that (hopefully) we'd be reducing LTV over time and therefore have access to better rates. This would, we figured, somewhat cancel out any rate rises. Is it silly or sensible to take this into account?
    • getmore4less
    • By getmore4less 27th Feb 17, 4:27 PM
    • 28,392 Posts
    • 16,977 Thanks
    getmore4less
    • #6
    • 27th Feb 17, 4:27 PM
    • #6
    • 27th Feb 17, 4:27 PM
    When we chose our existing mortgage, one of the factors we took into account was that (hopefully) we'd be reducing LTV over time and therefore have access to better rates. This would, we figured, somewhat cancel out any rate rises. Is it silly or sensible to take this into account?
    Originally posted by copperclock
    If you will cross a boundary that makes a difference then you do factor it in.

    it can complicate if one lender has say 65&75 and another has 60&70.
    • SouthLondonUser
    • By SouthLondonUser 27th Feb 17, 4:55 PM
    • 91 Posts
    • 13 Thanks
    SouthLondonUser
    • #7
    • 27th Feb 17, 4:55 PM
    • #7
    • 27th Feb 17, 4:55 PM
    Can you tell us more about your situation?

    You also have to take into account upfront costs. Depending on term and balance, a 2-year fix at 1.1% with a hefty fee may well be, in fact, the equivalent of a 1.7% with no fees. Paying an upfront fee every 5 years instead of every 2 can make a difference, especially for smaller mortgages.

    Also, how secure is your job? A friend of mine got a 5-year fix because he joined a start-up and figured he might be looking for a new job after 2 years or so, but not after 5: by that time the start-up should either work out or he should be in another position.

    Are your circumstances likely to change? Do you have any reason to suspect you would be eligible for a mortgage now but not in 2 years? Imagine a couple planning to have their first child, with both parents working. Childcare costs will be incredibly high till primary school age, but will drop substantially once the child starts school. Etc...

    Do you have any variable income, like bonuses, commissions, etc? If yes, remortgaging every 2 years makes it easier to overpay this additional, and hard to predict, income more often without paying penalties.
    • copperclock
    • By copperclock 27th Feb 17, 7:20 PM
    • 144 Posts
    • 150 Thanks
    copperclock
    • #8
    • 27th Feb 17, 7:20 PM
    • #8
    • 27th Feb 17, 7:20 PM
    Can you tell us more about your situation?

    You also have to take into account upfront costs. Depending on term and balance, a 2-year fix at 1.1% with a hefty fee may well be, in fact, the equivalent of a 1.7% with no fees. Paying an upfront fee every 5 years instead of every 2 can make a difference, especially for smaller mortgages.

    Also, how secure is your job? A friend of mine got a 5-year fix because he joined a start-up and figured he might be looking for a new job after 2 years or so, but not after 5: by that time the start-up should either work out or he should be in another position.

    Are your circumstances likely to change? Do you have any reason to suspect you would be eligible for a mortgage now but not in 2 years? Imagine a couple planning to have their first child, with both parents working. Childcare costs will be incredibly high till primary school age, but will drop substantially once the child starts school. Etc...

    Do you have any variable income, like bonuses, commissions, etc? If yes, remortgaging every 2 years makes it easier to overpay this additional, and hard to predict, income more often without paying penalties.
    Originally posted by SouthLondonUser
    In terms of our situation, our current fix isn't up until the end of the year, so there's no real point us getting bogged down in specific figures. It's just been on my mind recently hence this thread and this one I made about adding to the pension vs overpaying on the mortgage.

    Up front fees are certainly relevant. Because we have such a massive mortgage (about 272000 right now) it seems that we save a bit of money by paying the fee but, obviously, paying one every two years is more expensive than paying one every five.

    My OH's job is as stable as a job can be and we won't be having any more children, so those things aren't a concern. Having said that, though, because our mortgage is so enormous we'd rather not push our luck going for a full remortgage. We're planning to just get a new product from our existing lender (Nationwide) instead.

    Lots to think about. It's interesting to see how other people make their decisions.
    • SouthLondonUser
    • By SouthLondonUser 27th Feb 17, 9:15 PM
    • 91 Posts
    • 13 Thanks
    SouthLondonUser
    • #9
    • 27th Feb 17, 9:15 PM
    • #9
    • 27th Feb 17, 9:15 PM
    PS I see from your other thread that your LTV now is ca 90%. A shorter fix (2 or 3 instead of 5 years) would make sense if, at the end of the period, your LTV will have gone down enough that a new mortgage should be cheaper. Of course LTV is a function of how much you pay into the mortgage and how much the property appreciates or depreciates; the former is within your control, the latter clearly isn't! If the area appreciates substantially your LTV will plummet.

    Also, a reason why I don't find mortgages of 5 or more years appealing is the prospect of being tied to the property for too long: I don't like the idea that early repayment fees would be a big deterrent from moving elsewhere because of schools or a new job. Truth be told, though, most mortgages are portable, so you should be able to move without changing lender, if you meet their criteria at the time of the move. Still... Of course this is extremely subjective and this point may well be utterly irrelevant for you.

    Do you have reason to believe many other lenders would reject you? Have you calculated a monthly budget of net salary vs all outgoings? Of course you should include and reallocate monthly those expenses you only incur once or twice a year ( 3,000 a year summer holiday = 250 a month).

    What else? If you stay with the same lender, you typically don't need to pay for solicitors' fees, as the bank already has a lien on your property. Some banks don't even require a new valuation when you remortgage, depending on circumstances. These savings can add up.
    • copperclock
    • By copperclock 28th Feb 17, 3:44 PM
    • 144 Posts
    • 150 Thanks
    copperclock
    PS I see from your other thread that your LTV now is ca 90%. A shorter fix (2 or 3 instead of 5 years) would make sense if, at the end of the period, your LTV will have gone down enough that a new mortgage should be cheaper. Of course LTV is a function of how much you pay into the mortgage and how much the property appreciates or depreciates; the former is within your control, the latter clearly isn't! If the area appreciates substantially your LTV will plummet.

    Also, a reason why I don't find mortgages of 5 or more years appealing is the prospect of being tied to the property for too long: I don't like the idea that early repayment fees would be a big deterrent from moving elsewhere because of schools or a new job. Truth be told, though, most mortgages are portable, so you should be able to move without changing lender, if you meet their criteria at the time of the move. Still... Of course this is extremely subjective and this point may well be utterly irrelevant for you.

    Do you have reason to believe many other lenders would reject you? Have you calculated a monthly budget of net salary vs all outgoings? Of course you should include and reallocate monthly those expenses you only incur once or twice a year ( 3,000 a year summer holiday = 250 a month).

    What else? If you stay with the same lender, you typically don't need to pay for solicitors' fees, as the bank already has a lien on your property. Some banks don't even require a new valuation when you remortgage, depending on circumstances. These savings can add up.
    Originally posted by SouthLondonUser
    It's partly that Nationwide were pretty generous for our specific set of circumstances and it's partly that we just not up for going through the whole, gruelling mortgage application again for a while!

    We're really hot on our budget and on saving for those annual costs.

    Thank you for your thoughts and advice!
    • amnblog
    • By amnblog 28th Feb 17, 7:43 PM
    • 9,260 Posts
    • 3,568 Thanks
    amnblog
    You don't make these decisions with mathematics.

    Fixed rates are about security and fixed term is about balance between security and economy.

    Second guessing what is going to happen to rates is a dangerous game as many existing borrowers will witness.
    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.
    • strawberries1
    • By strawberries1 17th Mar 17, 4:32 PM
    • 551 Posts
    • 118 Thanks
    strawberries1
    I've found this thread useful in deciding whether to do a 2 or 5yr FTB mortgage. Thanks to all who contributed.
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