The "Should I Ditch my Fix?" Calculator Discussion Area

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.....

doogstoos wrote: »

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

MarkyMarkD wrote: »

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

tyllwyd

sizla wrote: »

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 ...

Still trying to get my head around how the calculator works ... when the calculator asked you how long the ERC would last, did you say two years or five years?

If it lasts five years, did the calculator assume that the 5.09% will apply for those five years? If it did, and the SVR is lower than the fixed rate, won't the calculator have underestimated the rate needed to beat their current fix?

And if their capital repayment is that high, their debt must be being repaid over a relatively short time - won't that affect the calculation?