Fixed vs variable, something I've been pondering

tomstickland

After taking to a number of mortgage advisors, they've all come up with pretty much the same answers.

I want to borrow £76,500 on an £86,500 property, repayment mortgage, with overpayment options.

The best rates are around 4.29%-4.4% fixed for two years. I've also looked at variable rates and the best London & County could find me was 4.39% (BOE -0.19%) for 2 years.

I see it as a bit of gamble really. If I go variable then there's the chance that the rate will drop to 4.14% at some time. Then again, it could climb up to 4.64%. It makes a +/- £11 per month per 0.25% change.

TBH there's so little in it that I wonder if a fixed rate would be the best option, because I know that I'll never have to pay more than £420pcm for 2 years, versus the option to have a £11 reduction (or £11 overpayment) and the risk of having to pay £11 or £22 extra per month.

Then again, the lure of a reduction is very attractive.

I guess that this is a quandary that many have faced.

MortgageMamma

go with your instincts. you already know the answer if you listen to yourself.

tomstickland

Well, I can do the random number method and see if I think I've got the wrong random number! (a technique that works really well).

I'm very 50-50 on this. It's not a problem, I know I'll reach a suitable answer, but I'm just enjoying teasing myself about making a decision and then regretting.

I'm not really a gambling sort of person, hence why I wanted fixed to start with. But I'm wondering how annoyed I'll be if rates go down. Then again, I don't see rates going down any more than 0.25%, hence why I originally thought fixed was good.

It was Martin's article that sowed the seeds of doubt - "if you can afford the risk of the rate rising, then you're probably best off taking advantage of the variable rate".

Ian_W

Hi Tom,
If you're not really a gambler, how about I seek to sow another little seed of doubt? You've said in other posts you intend to stay in your flat a good while, why not go for a longer fixed?
3 and 5yr are only about 4.7, so given that IR are still historically very low and there's the added bonus of longer before remortgage fees and costs come into play, don't they tempt you? Just a little?

tomstickland

I'm still pondering, but I'm thinking fixed now. I'm going to get L&C to requote for their best fixed rate deal.

cloud_dog

Tom

Fyi, not sure if it will help you as you need to make the decision.

I (we) have just moved from a BRT to a 5yr fix (4.69% with Nationwide). I had previously been moving between 2yr fixed and 2yr BRT but with the loe longer term rates available thought it would be useful to take advantage of it.

I'll second Ian W's comment regarding re-mortgaging costs. People often choose to ignore these in favour of the lowest rate. When I was doing my comparisons the cost of remortgaging (over 2 years) worked out at an extra £20pm (or thereabouts) and that was staying with my current provider, so I've decided to take the slightly higher initial rate of the fixed and will benefit over the longer term (hopefully).

cloud_dog

mr_fishbulb

tomstickland wrote:

I see it as a bit of gamble really.

Maybe you could lay it on betfair

I'm in the same sort of position, although looking to borrow more money as I'm getting somewhere with my girlfriend in London.

I'm thinking of going for a fixed mortgage even if it is a bit more. The reason is I know how much the monthly repayments will be. Even if they cost a little more than the variable, I know that there is no chance they could go higher and leave me unable to pay them.

silvercar

I fixed in 1993 for seven years. At 8.65% - a number that remains etched on my brain.

I started to keep a spreadsheet, monitoring my total savings (Ahem). All went well until the end of 1995 when I was showing a loss, 1996 when I was showing a bigger loss, 1997 when the loss was too great to keep the spreadsheet going.

Redemption penalties meant it never seemed worth moving away.

The final straw was when the fixed rate ended and the Halifax would not let me access their new customer deals but invited me in to discuss the best deal they could do. After an hour discussion and trying to sell me insurance etc they offered me 8.64%!

TangentMan

Well, to add something else to the mix (which i am sure isn't really helping! :rolleyes: ) have you thought about a capped rate?

I am not sure what the current rates are but if the rates drop below the cap you benefit, if they don't you pay the cap.

All depends what the cap is of course!

BACKFRMTHEEDGE

Thanks silver car that certainly gives us something to think about. I have been chewing over a 10 year fix. :money:

tomstickland

Well, I phoned up L&C today and asked them to look at suitable fixed deals for me. Best they could do was 4.39%. I asked about the Portman 4.29% deal and it turns out that that's direct customer only. I'm prepared to go direct. I've just run the numbers through my spreadsheet and going from .39 to .29 takes monthly payments on a 25 year term down from £420 to £416, or would take 6 months off the total term if I overpay the £4 per month! I'm going to be overpaying by a few hundred ideally anyway.

I think I'll go and take another look at Charcoal and Moneysupermarket etc to see what deals there are.

Useful features of the variable rate morggage from Halifax are the overpayments and a facility to underpay by any amount as long as the underpayments don't exceed the sum of the overpayments to date. I'd really like a mortgage where I could withdraw overpayments, so I could use savings to offset the mortgage.