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  • FIRST POST
    • clairebeth
    • By clairebeth 18th Apr 17, 12:07 PM
    • 99Posts
    • 26Thanks
    clairebeth
    5yr vs 10yr fix?
    • #1
    • 18th Apr 17, 12:07 PM
    5yr vs 10yr fix? 18th Apr 17 at 12:07 PM
    Hello,

    Just looking for your general thoughts and advice on this. I know the final answer rests with us and what suits our financial situation, but interested in hearing some opinions!

    We are going to ditch our YBS 3.69% fix which ends 31/07/19. We initially started thinking about this due to the savings that switching to a cheaper rate would bring, despite the £3200 ERC from our current fix. We were then very attracted to the First Direct 10 year fix @2.64% with no fees. Our ultimate aim is to pay our mortgage off in ten years, and we liked the idea of knowing that we could lock in a low rate with unlimited overpayments in that time. We would break even on 'ditching our fix' on this rate, but felt it would provide us with security during the Brexit/Trump/ children's primary school years (we have a 4 year old and a 5 month old).

    However, particularly since the release of the Atom mortgages last week, (which I believe we would meet the lending criteria for @1.34% on 5 year fix), I wonder if we should try for the shorter fix, less interest (20% overpayment allowed), and get ahead over the next five years and refix in 2022?

    Our first mortgage in 2009 was at a rate of 6.04%, so anyway we look at this, we know we're in a pretty fortunate place, but I don't want to make a decision we regret! Is it possible that rates will be up at 6 or 7% again in 2022 if we take the five year fix?

    Any advice appreciated! Thanks!
Page 1
    • pjcox2005
    • By pjcox2005 18th Apr 17, 12:28 PM
    • 436 Posts
    • 435 Thanks
    pjcox2005
    • #2
    • 18th Apr 17, 12:28 PM
    • #2
    • 18th Apr 17, 12:28 PM
    I haven't done the maths, but if you truly are paying off in 10 years then it looks a fairly free bet to take the Atom mortgage.


    Half the rate being paid on the first 5 years then the 10 year fix, which is the period where the balance will be at it's highest. Presumably rates would need to be up above 6% for it not to be cheaper over the 10 year period when you do come to remortgage. i.e. 6% rate and you'd be the same situation overall and better off if you have repaid.


    You'd then also have the benefit of greater flexibility on moving etc.


    Also, if you do get the low rate, and you can trust yourself to save then you'd probably be better off in savings accounts/investments then overpaying the mortgage as it will give a better return.
    • originalmiscellany
    • By originalmiscellany 18th Apr 17, 12:39 PM
    • 1,580 Posts
    • 3,823 Thanks
    originalmiscellany
    • #3
    • 18th Apr 17, 12:39 PM
    • #3
    • 18th Apr 17, 12:39 PM
    I think the Atom Bank is a bit of a "promotional vessel" and it's great publicity for them but it may be hard to get approved (through selected brokers) - and there may well be a small pot of cash for these. I may of course be wrong but they're gained tons of free publicity through this and they are SO MUCH cheaper than other alternative mortgage rates.

    Have you started looking into Atom Bank yet? If you take them out of the equation, how would that affect your thinking?
    Feb 2012 - onwards MF achieved
    June 2016 - Back into clearing a mortgage
    June 2017 - Back into clearing a mortgage - Was 32 years - Is 29.09 months vs 31.2 months at normal payment
    Aims: 1) To pay off mortgage within 20 years - 2037
    • clairebeth
    • By clairebeth 18th Apr 17, 1:01 PM
    • 99 Posts
    • 26 Thanks
    clairebeth
    • #4
    • 18th Apr 17, 1:01 PM
    • #4
    • 18th Apr 17, 1:01 PM
    Thank you both. Yes, you're right, pjcox, interest rates would need to be about 6% in five years time for us to be worse off. Original Miscellany, I have looked at their eligibility criteria, which was linked in another thread about the Atom Mortgages, and I believe we would meet this, but I agree it may not actually happen in reality, so we would go with the First Direct one in that case, as the next best rate we could get would be 1.95% over five years but with higher fees. (First Direct has no fees). I think I will phone London and Country this arvo.
    • getmore4less
    • By getmore4less 18th Apr 17, 4:09 PM
    • 29,129 Posts
    • 17,420 Thanks
    getmore4less
    • #5
    • 18th Apr 17, 4:09 PM
    • #5
    • 18th Apr 17, 4:09 PM
    Crunch the numbers and see where your break even dates are.

    Lower rate for 5y should get you to a good point how good will depend on the detail.
    • getmore4less
    • By getmore4less 19th Apr 17, 4:37 AM
    • 29,129 Posts
    • 17,420 Thanks
    getmore4less
    • #6
    • 19th Apr 17, 4:37 AM
    • #6
    • 19th Apr 17, 4:37 AM
    thought I remembered.. this is a followup to
    http://forums.moneysavingexpert.com/showthread.php?t=5601096

    from that based on a switch around July 17 with penalties and £1k fees you will owe around £168,900.

    over 10 years @ 2.64% £1600pm
    you were talking about £1056pm which is what I shall use

    current 2y left is £164,575 @ 3.69%

    in two years
    £164,575 @ 3.69% £150,899
    £168,900 @ 2.64% £152,157 (break even @ 2y is 2.29%)

    the new alternative is the 5y
    £168,900 @ 1.34% £143,371

    The 10y fix really is a hedge against early rate rises the 5y covers itself over that first 2 years.

    for the 10y V 5y what does it look like at y5

    £168,900 @ 2.64% £125,167
    £168,900 @ 1.34% £110,480
    that's a tasty reduction.

    next 5years
    £125,167 @ 2.64% £75,156
    £110,480 @ 5.96% £75,123

    how does that 5.96% compare to the normal 5y fix today

    if you are upping the payments at y5 to clear in 10 total

    £125,167 @ 2.64% £2229pm (that's what you need on the 10y fix on a new deal same payment will cover)
    £110,480 @ 7.79% £2229pm


    I think you said you should be able to up the payments sooner the numbers will be different.
    • GardenGirl77
    • By GardenGirl77 19th Apr 17, 8:13 AM
    • 23 Posts
    • 306 Thanks
    GardenGirl77
    • #7
    • 19th Apr 17, 8:13 AM
    • #7
    • 19th Apr 17, 8:13 AM
    Clarebeth
    We decided to switch to At0ms 1.64 5 year fix (currently on a 1.74 tracker so not much different but it protects us from rate rises over the next few years). The guy at L&C said that it is likely that the deal will be withdrawn soon so if you decide to go for it you need to act fast.
    • adindas
    • By adindas 19th Apr 17, 8:30 AM
    • 3,170 Posts
    • 1,520 Thanks
    adindas
    • #8
    • 19th Apr 17, 8:30 AM
    • #8
    • 19th Apr 17, 8:30 AM
    Clarebeth
    We decided to switch to At0ms 1.64 5 year fix (currently on a 1.74 tracker so not much different but it protects us from rate rises over the next few years). The guy at L&C said that it is likely that the deal will be withdrawn soon so if you decide to go for it you need to act fast.
    Originally posted by GardenGirl77
    It is even better now: 60% LTV with £900 fee: 1.29%
    http://www.thisismoney.co.uk/money/mortgageshome/article-4401008/Atom-slashes-5-year-fix-rate-mortgages-record-1-29-low.html
    • clairebeth
    • By clairebeth 19th Apr 17, 8:32 AM
    • 99 Posts
    • 26 Thanks
    clairebeth
    • #9
    • 19th Apr 17, 8:32 AM
    • #9
    • 19th Apr 17, 8:32 AM
    Thanks everyone! Getmore4less, thank you for your excellent input as always! Yes, we should be able to overpay most months. I also got the same calculations as you, so we are trying for the 1.34% (fingers crossed). I spoke to L&C yesterday, Garden Girl, and he said the same, so hopefully we can get everything organised asap, but I'm not holding out a whole lot of hope! Thanks!
    • clairebeth
    • By clairebeth 19th Apr 17, 8:33 AM
    • 99 Posts
    • 26 Thanks
    clairebeth
    @adindas, that only applies of you have 60% LTV. The other rates are for higher LTV.
    • GardenGirl77
    • By GardenGirl77 19th Apr 17, 8:52 AM
    • 23 Posts
    • 306 Thanks
    GardenGirl77
    Sorry i should have qualified by saying that 1.64 is the 60% LTV fee free option - the £900 fee made the 1.29 more expensive for us. However the important bit is that if one of At0ms current rates suits you need to get it sorted before they increase them
    • clairebeth
    • By clairebeth 19th Apr 17, 6:42 PM
    • 99 Posts
    • 26 Thanks
    clairebeth
    Ahhh, alas! It looked like we might have had everything in place to obtain this rate! All the paperwork, impeccable credit reports...but, in the end, I don't meet their maternity leave criteria. Both the broker and I felt that, seeing as we don't want the switch to happen until August, that me returning to work in October would be fine. Seemingly they had an Atom rep in the L&C office today and they specifically discussed our application and I need to be returning to work within three months of the application submission, not from the day the mortgage commences! Sigh.

    Not to worry, back to the drawing board. Still in a fortunate position. It's not like we're living in Syria!
    • GardenGirl77
    • By GardenGirl77 19th Apr 17, 9:36 PM
    • 23 Posts
    • 306 Thanks
    GardenGirl77
    I'm sure there will be other good deals - there seems to be a bit of a price war at the moment. In the meantime enjoy your mat leave
    • clairebeth
    • By clairebeth 20th Apr 17, 8:39 AM
    • 99 Posts
    • 26 Thanks
    clairebeth
    Thank you, GardenGirl! I note they pulled the 1.29% overnight but the other mortgages from Atom remain. We might sit on it a bit. We have had an excellent experience with London and Country over the past 48 hours too.
    • originalmiscellany
    • By originalmiscellany 20th Apr 17, 5:48 PM
    • 1,580 Posts
    • 3,823 Thanks
    originalmiscellany
    Yes, the star Atom mortgage is removed. Best of luck in securing your mortgage
    Feb 2012 - onwards MF achieved
    June 2016 - Back into clearing a mortgage
    June 2017 - Back into clearing a mortgage - Was 32 years - Is 29.09 months vs 31.2 months at normal payment
    Aims: 1) To pay off mortgage within 20 years - 2037
    • clairebeth
    • By clairebeth 23rd Apr 17, 7:01 PM
    • 99 Posts
    • 26 Thanks
    clairebeth
    Getmore4less, do you use a particular calculation or a spreadsheet for your sums? I can use a spreadsheet to do 'forecast' of payments/balances etc to compare mortgages, but I can't work out how to do what you do, to see 'what do interest rates need to be in x years for this to be a good/bad idea?'

    Basically, I'm going back to my original thoughts in my 'ditch our fix' thread about fixing onto a super low rate for two years, as the other five year rates don't really benefit us over the two years we have remaining on our current fixed term, and then we would end those two years worse off with only three years left to go on the fix (does that make sense)?

    So again, I'm trying to compare

    169200 @ 1.18% over 23 months (potential fix)

    164600 @ 3.69% over 23 months (current fix)

    If we switch, and in two years time the country is down the toilet due to Brexit (appears less likely than I thought last June, admittedly), then what do rates need to be at for me to think 'bummer should have taken that 10 year fix'.

    Our current potential long term fixes being:

    168,000 @ 2.19% over 5 years

    or

    168,000 @ 2.64% over 10 years.

    I hope my ramblings make sense! It may be fruitless for a couple of months until the maternity leave is nearer the end. Your help, or a point in the right direction of how to do that calculation, is greatly appreciated!

    Thanks!
    • getmore4less
    • By getmore4less 23rd Apr 17, 7:29 PM
    • 29,129 Posts
    • 17,420 Thanks
    getmore4less
    i just use multiple tab and
    http://www.whatsthecost.com/mortgage.aspx

    play with numbers.

    add fees make the payments the same and see what's left give a quick and fairly accurate comparison over a period of time.

    I do have a spreadsheet on my main computer to do some of the common comparisons and forcasts.

    There are only 4 variable and you only need 3 to model a mortgage
    typically you have, amount, rate and payment.

    if you want to hit a target like an amount left in 5y to match the 5y fix.
    At the end of the 2y fix you have the amount owing and the payment and 3 years, if you change the rate you get an amount owing in 3 more years(5y in total) when that matches the same amount as the 5y fix that's the rate needed to break even after 2 years.

    You then decide if that is high enough to go 2+3 or go 5.

    the iterative process takes a little time but you get good at guessing the rate when you do it a few times.
    • clairebeth
    • By clairebeth 23rd Apr 17, 7:31 PM
    • 99 Posts
    • 26 Thanks
    clairebeth
    Thank you! I really appreciate it! I'll have a muck about with it!
    • sevenhills
    • By sevenhills 27th Apr 17, 10:39 PM
    • 275 Posts
    • 128 Thanks
    sevenhills
    If we switch, and in two years time the country is down the toilet due to Brexit (appears less likely than I thought last June, admittedly), then what do rates need to be at for me to think 'bummer should have taken that 10 year fix'.
    Originally posted by clairebeth
    I am hoping to get a 10 year fixed mortgage, next month, from the Coventry.
    A couple of years before rates nose dived, no one predicted it, and no one can predict when rates will be 5%+
    I am a right to buy, £35k, over 12 years.
    • clairebeth
    • By clairebeth 28th Apr 17, 3:45 PM
    • 99 Posts
    • 26 Thanks
    clairebeth
    That's true, although I was a first time buyer in 2009 and the reduced rates weren't actually passed onto the public for ages, 6.04 :-( ! However, you are completely right, no one can predict the future, but it's reasonable to try and pay less in the meantime to be in a better position in the future!
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