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

Ms_Brush

I think that the calculator is simply a tool to get people to understand that unless specific circumstances apply for a fortunate few, there is no point even thinking about switching out of your current fixed deal while the credit crunch is going on as the banks have everyone by the short and curlies!

I am hoping that the banks' behaviour will be eventually deemed as illegal and anti competitive (as per bank charges) - but until that point I think we just have to grit our teeth and hold on during a very uncomfortable ride!

tyllwyd

MSE_Dan wrote: »

The calculator is a quick ready reckoner, intended to give people an idea whether it is worth even considering a switch. It is surrounded (and includes) by our strongly held belief that anyone who wants to take it further should get a broker to take them through all the details.

I still can't get my head around the figure it is giving me - I can't see that a rate, without any indication of how long your mortgage has to stay at that rate, has any meaning at all?

For example, if I have just started a five year fix with a hefty redemption fee, and the calculator tells me a certain rate will beat that fix. If I don't think any more about it, and decide to add the ERC to the mortgage and go for a new two year fix at that maximum rate, and happily pay the reduced payments ... at the end of that two years, won't the capital outstanding be more than it would have been at the same point if I'd carried on with my five year fix, because of the effect of the ERC?

MarkyMarkD

Yes. But the calculator assumes - not necessarily validly - that you'll then be able to re-fix again at the same rate as assumed in the first fix.

It's a bit misleading.

The best way to use it is not as a guide to whether you SHOULD ditch and switch, but as a guide to whether you SHOULDN'T.

For many people, the rate you need to get to make it worthwhile is so low, that there is no chance. And therefore they should just stick it out on their existing fix.

If the wording said that, a bit more clearly, it would be far better.

tyllwyd

MarkyMarkD wrote: »

For many people, the rate you need to get to make it worthwhile is so low, that there is no chance. And therefore they should just stick it out on their existing fix.

Yes - one of my issues with the calculator is that as far as I can see, if you are on a longer fix, then the ERC is assumed to be recouped over a longer period, which means that using this calculator it may look easier to beat a long fix than a short one, but in fact it will take longer to get to the point when you have recouped your ERC (although granted your monthly interest payments will have dropped a little).

If the mortgage rate that the calculator is suggesting has to remain at that level or lower for the entire time of your remaining fix, then why isn't that explained to users? The longer your fix, the more important that point will be.

Annie1_3

After completing the Ditch the Fixed calculator it indicated I may be better off getting out of the current fixed rate deal I have with Nationwide. I only took this out in October 2008 and even considering my redemption penalty I was prepared to pay this and any admin fee and move to their variable rate to reduce my monthly payments.

That was until I discovered that a few weeks ago Nationwide stopped allowing existing mortgage customers to move from an alternative mortgage product to their now low variable rate. If an alternative provider did let us move to their variable rate I am sure they would charge valuation and legal fees at the very least making the move more costly.

tcaratella

Hi, i have just got off the phone to nationwide and they have told me i cant come out of my 5 year fixed rate of 5.63% (3 and a half years left to go). When the rates dropped i called early in the year and the actually told me i would need to pay £3000 for my erc. Now they are saying they are not allowing customers to move from fixed rates at all and wil have to let them expire naturally. I AM FURIOUS :mad: because the advisor at the time said i could move, would thy still honour it as there might be confusion with members of staff about what regulations are in force at what time, mmmmm anyway if anyone else is in the same boat, please share. i really dont want to keep paying 5.63% for an another 3 1/2 yrs when i could be paying half!!! AAGGGHHH!!

maestro2001

tcaratella wrote: »

Hi, i have just got off the phone to nationwide and they have told me i cant come out of my 5 year fixed rate of 5.63% (3 and a half years left to go). When the rates dropped i called early in the year and the actually told me i would need to pay £3000 for my erc. Now they are saying they are not allowing customers to move from fixed rates at all and wil have to let them expire naturally. I AM FURIOUS :mad: because the advisor at the time said i could move, would thy still honour it as there might be confusion with members of staff about what regulations are in force at what time, mmmmm anyway if anyone else is in the same boat, please share. i really dont want to keep paying 5.63% for an another 3 1/2 yrs when i could be paying half!!! AAGGGHHH!!

I'm on a five year fixed rate with the Nationwide (5.34% -41 months remaining) and have been reading the ditch and switch posts with interest as its something I had bee considering. It hadn't even occured to me that I might not be allowed out of my mortgage. I plan on giving thema call tomorrow after your post-I actually don't think I'd be better off switching anyway, but it would be nice to have the option!

Anon

I think that you may have misunderstood tcaratella. They will not let you out of the fix to go onto their BMR (or any other product that they are currently offering) even if you pay the ERC.

I am not sure that they can stop you transferring to another provider?

Anon

MSE_Martin

MarkyMarkD wrote: »

Yes. But the calculator assumes - not necessarily validly - that you'll then be able to re-fix again at the same rate as assumed in the first fix.

It's a bit misleading.

The best way to use it is not as a guide to whether you SHOULD ditch and switch, but as a guide to whether you SHOULDN'T.

For many people, the rate you need to get to make it worthwhile is so low, that there is no chance. And therefore they should just stick it out on their existing fix.

If the wording said that, a bit more clearly, it would be far better.

Hi Marky Mark

Thank you for this - while i understand you later comment (and it does say in capital letters UNLIKELY you will be better off ) and indeed that was primarily the reason for the calculator.

However I dont understand where you're going with the re-assumption that you fix again at the same rate. Not sure where you're going there. Pls explain more.

Ta

MarkyMarkD

Thanks for the question, Martin.

What I mean is that the calculator assumes that you will be able to get the "target" rate throughout the period of your existing fix.

i.e. if you are currently paying 6% (for the next 8 years) and you are tied in for those 8 years, it might say you need to get 5% or better to be worth switching and paying the ERC.

But that 5% or better has to prevail throughout the 8 years for the maths to work.

Given that most high-profile cheaper fixes are for just 2 years, anyone seeing the "5% is good enough" who takes a 2 year 4.9% fix (say) needs to then be able to fix again at 4.9% for the remaining 6 out of the original 8 years, or they are worse off.

It comes back to certainty, really - by switching, they are throwing away certainty for 8 years in exchange for what might be quite a small saving over the next 2 years.

Obviously, they might find it easy to fix at 4.9% again in 2 years for the remaining 6. But equally well they may not - and I don't think that increase in risk is obvious to the less well-informed user.

It would help hugely in clarity if the calculator's results said "you need to get a fixed rate of 4.9% which lasts for the next 8 years, or a shorter-term fixed rate but then you risk not being able to fix at 4.9% in 2 years time to cover the remaining 6 years of your current fix.

Do you see what I mean?

It comes back to what I said before - it's a useful calculator to tell you when NOT to ditch and switch, but not a useful calculator to tell you TO ditch and switch which (as MSE Dan has said earlier too) requires some professional advice - or to know what you are talking about.

Can we have a "ditched and switch" success/failure thread too please, as I think it would be very interesting to see (a) who did it and what they saved and (b) whether they have really increased their risk significantly without realising it?

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Regarding the Nationwide's policy change, it makes total 100% sense. They will lose a lot of money in respect of everyone who ditches and switches - unless they do so when the calculator says "No" - so they are totally commercially right to say "No". The same logic applies to every lender and I would be surprised if many will say "Yes" in the same circumstances.

Using the betting analogy so many like, doing so is like placing a losing bet and then trying to change it half-way through the race to an each-way bet because you realise your horse is going to come second. To some extent you can do this - by remortgaging elsewhere - but that doesn't mean lenders have to make it easier for you.

It also highlights the fact that Nationwide's BMR is simply too low for the lending it could apply to, but that's an error in Nationwide's pricing by formally linking BMR to BBR+2.00% in a moment of madness.

What I mean by this is that allowing people with an effective LTV of 100% or more - people who borrowed at 90%+ and whose property values have fallen significantly since - to borrow at 2.5% is completely ridiculous when the same borrowers are completely unable to get a mortgage anywhere else.