Anyone else considering a 5yr/10yr fixed rate mortgage?

Dithering_Dad

Just a bit of background about myself before I start...

I'm currently in an SVR discounted deal that ends in April 2010, so just over a year to go. I am currently a member of the MFi3 (Mortgage Free in Three Yrs) challenge over on the MFW (Mortgage Free Wannabe) forum and my mortgage currently stands at £105k. The challenge also ends in April 2010 and I am hoping to have reduced my mortgage to about £90k by then.

My MFW plans, post April 2010...

I plan to ease back on my mortgage overpayments once the MFi3 challenge has ended, but still want to pay off my mortgage early. I therefore anticipate changing my mortgage so that it has a much shorter term (10 yrs rather than the current 20yrs). I will also try to find a mortgage that will allow me to overpay by at least 10% per annum - I realise that I will already be overpaying substantially by reducing my term to 10yrs, but would also want the facility to overpay any bonuses or other unexpected amounts of money onto the mortgage.

My interest rate fears, post April 2010...

I very much doubt that we will have 0.5% interest rates long-term. I would expect interest rates to climb to 3% or 4% within the next six to nine months and I have a very real fear that inflation will slingshot out of control while the government has their eye on other matters (such as the recession). If this does occur, then interest rates will eventually return to the sort of levels we saw in the 80s, ie 10% to 15% - perhaps even more. After all, we haven't seen the current interest rate of 0.5% for 300 odd years, so is it unreasonable to expect a return to interest rates we haven't seen in 20 odd years?

Therefore to cover myself, I'll be considering a fixed rate mortgage, probably over a 5 year period (i.e. ending in 2015) as that would be half way through my new 10 year term and I will therefore have reduced my mortgage by almost half (especially with any extra overpayments) and so would obviously not be as dangeriously exposed to high interest rates with a £45k mortgage as I would be with a £90k mortgage.

My questions, and point of this thread...

Is anyone else worried about runaway inflation and double digit interest rates over the next 3 to 5 years? Are you looking to arrange a fixed rate sooner rather than later? What predictions do people have for interest rates over the next few years?

Any contructive criticism or support for the Dither family's 6 year plan greatfully received

cbrpaul

The only thing with a fixed rate is that your basicially tied to it for the period !!!

Also the fee,s for these are quite large £1000+

Over payments are also limited, and redemtion fee,s are payable if your circumstances change .

Myself bY going onto the SVR in Jan 09 , i have been fee free for over 6 years now , I know some who have paid a few £1000 in that time period , and have not had lower rates than me !!

I intend to wait abit longer , and I will eventually go onto a fixed rate i think , but the biggest fear is that when that fixed rate ends either a 3 or 5 year period you end up catching the market as its picking up again fast and see rates of 6%+ with deals of around 7%+

Now wheres my crsytal ball gone

Trying_to_be_good

DD

As a fellow MFiTer, I find myself with very similar thoughts. Whilst I have a fantastic lifetime tracker at +0.18%, limitless overpayment, at the moment, I really fancy a ten year fixed rate portable offset at a low rate (well, wouldn't we all).

I'm likely to move again at some stage, and probably with a bigger mortgage, hence wanting some security of a fixed term that I can fully offset in the short term, but reborrow later. Ideally, I'd like to be able to offset my cash ISAs, but I'm prepared to have them separate if I could get the rest of the deal!

WestonDave

I agree with the long term prognosis of interest/inflation - I'm not sure however when it will take hold and how best to deal with it.

At present I've got an OK rate (was more competitive but First Direct are not playing any more!) but great flexibility. If I needed to I could borrow back all the capital I have paid so far and use it to pay future mortgage interest, and thereby safeguard the house if I were made redundant. Fixed rates on offer now are more expensive in themselves and require a fee - and at present I see no imminent danger of rates going back up. I'm therefore going to hold out for a while longer, by which time hopefully my job should start to become more secure and I can fix at that point. Portability isn't really a concern as we have no intentions of moving so we can fix for as long as we choose from that perspective.

One thing to bear in mind is that if inflation does take off, although higher interest rates will seem expensive, you will probably be getting inflationary increases in salary. Because the capital on which interest is calculated won't increase in value, the real cost of the mortgage (both interest and capital) will fall.

robbomc

I am looking for a 5 or 10 year fixed deal at the moment.

Looking for 170.000 on calculated value of 350.000.

Its all about peace of mind for me as not moving. Very tempted at hsbc or abbey 5 year fixed at 3.99 and 3.95. Been verbally approved by hsbc.

Would like a 10 year but still a bit high at the moment chelsea at 4.59 or leeds at 4.75.

If somebody could knock half a percent of theses and I will be a very happy man. Other point is that 10 years is a long time but it will come and go so whats the answer.

Defo not selling so got to make the right decision.

Dithering_Dad

Thanks for your responses guys. I agree that it's really difficult to know what to do, because without a crystal we can only make educated guesses.

My stance on this is that I will have had a sustained period of 3 years where I have blitzed my mortgage (due to the Mortgage Free in 3 challenge). I will then want to concentrate on other parts of my finances while leaving my mortgage to 'get on with it'. I still want to reduce it, but at a much reduced pace, hence the appeal of reducing my term to 10 years and making occasional overpayments as and when I can afford it.

As far as the mortgage rate is concerned, I guess its a trade off between getting a fixed rate and paying slightly over the odds if I'm wrong and we dont have double digit inflation or not fixing and paying well under the odds if I'm right and we do have double digit inflation. I'm a cautious person and the thought of paying a fixed sum on my mortgage for 5 years, no matter what, is very appealing. If I could get a 5% fix for 5 years, it'd be ideal because even upto a few months ago, this was a reasonable mortgage rate.

I agree with cbrpaul regarding mortgage arrangement fees. They really mount up, especially when you remortgage every 2 or three years. People always forget to factor this amount into their calculations. In my case, I was on SVR for many months until I decided to take up the 3 year discount with my current provider for an arrangement fee of £300. I know my fixed rate will be about £1k but I'll pay for this out of savings so at least I'm not paying interest on the fee, plus I'm hoping to significantly reduce my mortgage over the 5 year deal to the point that I'll be able to afford to stay on the SVR for the remaining 5 years of my mortgage term.

JayZed

It's a tricky one, DD. I'm about to come off a 2-year fix onto a very attractive SVR, and of course I'm tempted to sit on the SVR and pay £250 a month less in interest. The key thing of course is to get the timing right, and get onto a fixed-rate deal just before rates start to rise. That's where the crystal ball comes in handy.

You say that "I would expect interest rates to climb to 3% or 4% within the next six to nine months". Do you mean the next six-nine months from now, or from April 2010? Personally I don't see the base rate rebounding this year - I think we're going to see a near-zero rate for at least the next six months, but I do think that once they start rising, there's a risk that they'll rise fairly high fairly quickly. And of course lenders won't wait until the base rate starts rising to push up their fixed rate deals.

For my part, I plan to sit on the SVR through the summer but watch rates closely, and if an attractive 3-year or 5-year fix comes along, I'll snap it up. With a LTV of under 75%, for a 3-year fix, I'd consider something around 4% to be attractive; for 5 years I'd ideally want around 4.5%. Of course, my rate expectations are flexible and will change with the circumstances.

dimbo61

HI DD follow your thread on the MF board
I have an offset with ybs fixed for 5 years ( 3 years plus in ! ) so paying a little over the going rate of 3.95/3.99 HSBC/abbey but happy because offset alot of the mortgage so save loads of interest !!!
In 2 years it goes onto tracker at 0.75% over BOE rate ( whatever that will be then !!)
I also reduced term to 10 years but on course to repay in a little over 8 with overpayments and offsetting ( gross )
Love offset as can make massive overpayments and keep money in offset account. Just my thoughts.

dimbo61

Hi jayzed Post office doing 5 year fix LTV 75% at 4.15% fee £599

Dithering_Dad

JayZed wrote: »

You say that "I would expect interest rates to climb to 3% or 4% within the next six to nine months". Do you mean the next six-nine months from now, or from April 2010? Personally I don't see the base rate rebounding this year - I think we're going to see a near-zero rate for at least the next six months, but I do think that once they start rising, there's a risk that they'll rise fairly high fairly quickly. And of course lenders won't wait until the base rate starts rising to push up their fixed rate deals.

Yes, sorry, I meant rates to climb within 6 to 9 months from April 2010. I also believe that we'll see flat rates for a good part of this year, though I'd expect them to move up from 0.5% but only by a percent point or so.

Timing is everything, though I have never minded if I don't 'catch the bottom' of a particular market, share or interest rate. My main aim is to secure a decent deal that will give me piece of mind. Lets face it, a 4.5% fixed rate is pretty good value if we exclude the current ridiculously low interest rates.

I might even look at 10 year fixes. Mrs Dither and I have pretty much decided to stay put in our current house until our littlest one leaves school (she is 7 this year), so that's approximately 10 years if she goes into 6th form, etc. It would be nice to have the mortgage cleared just as our nest empties and we can then sell up and buy a nice 2 bed stone cottage (telling kids where we have moved to is optional )

dimbo61

Plus you can then pay for the little angels through university and help them get on the property ladder !!!!!
Offset mortgage is also good for that ( YBS OFFSET PLUS ! )