Fixed Rate Question

kriss_boy

I have a tracker so Im benefiting from the low BoE rate right now.

But how exactly do fixed rates work? You sign an agreement of say 4% for 5 years but then is there anything in writing to say what happens after the 5 years? Can the lender put the rate to what they want?

If so why do people chose fixed rates not know what they will pay when the offer ends.

Can you keep fixing again and again?

~Beanie~

Yes, when the fixed rate ends you can usually fix again or choose a different mortgage product. I chose a fixed rate because I like knowing exactly what my mortgage will cost every month and I like knowing that my repayments will not increase - not until the 5 year fix period ends at least!

kriss_boy

Oh, I thought though that people were losing their homes as they had signed fixed deals of say, 3 or 4% but then couldnt afford their repayments when promotional fixed rate ended.

Why didnt they just fix again? Or were they getting a fix of say 3% but then being offer a fix of maybe 6% by 2007/2008 which was too much?

mark55man

the reason why people fix, is that although you have to fix again in 2, 3 or 5 years, when you have no idea what the rate would be (fixed OR variable) as its 2, 3 or 5 years in the future, at least you know what you have to pay now.

As a tracker - you are also at risk.

On fixed if you can't afford 10% (or whatever) when you get there at least on fixed you have been paying at 5% (or whatever) until that point whilst all the trackers will have already been going up and paying ever increasing amounts. Possibly needing to fix at the point where they can just afford it (but still at risk when that then ends)

(Equally if rates don't go up fixed rate people, will have been paying over the odds will have paid more than trackers - who will be smug)

chappers

Yes there will be something written in as to what happens at the end of the fixed rate, usually you will go onto the lenders standard variable rate, this could in theory be anything the lender has chosen at the time.

Just be aware that during the recent credit crunch many people came off of fixed rates and due to the nature of the current mortgage markets found they couldn't get another deal so were stuck with the lemders SVR.

No one can be certain but it's all about doing some research and getting decent advice as to what may be about to happen in those 5 years and making a decision based on that.
If you think you are going to be on a tight budget for the next 5 years then consider fixing so you are sure of your posiotion if you don't think interest rates are going to rise then maybe look at some other products, one thing you can probably be sure of is they ain't going to get any lower, but that isn't the be all and end all as lenders margins are for ever changing.

kriss_boy

So you there would always be something in writing to say exactly what the rate would be after the fixed term ends? Ie they entice you in with an affordable 4% for 5 years but in the small print it says you then pay 3 above the BoE there after?

Do you think a lot of people ignore than rate?

mark55man

i think you are looking at it the wrong way kriss_boy. its not that they suck you in and then shaft you, its they charge you a rate for a fixed period, and you then you see what the rate is as that point and decide to leave or move to the standard rate, which will be higher than offers, but not usually ridiculously so

if they would guarantee the rate after you fix finishes you would in effect be getting a longer fix !!. I think the most they will say is that they will be 1.5% (or whatever) above Bank of England - so you won't know exactly and absolutely what it is, but you will know if its reasonably consistent with other mortgage lenders

I think people make a decision about what's right for them for the period of the mortgage and don't worry about after that - as there's not really anything you can do unless you want to fix for 10 years or more

at least with a fix you get to watch the rates go up in time to do something about it (saving / selling). my belief is that in about 2-3 years the rates will already have risen and will go further and anyone on a tracker will be facing increasing costs every quarter

dimbo61

I have a 5 year fix which goes onto a BOE tracker at 0.75% above the BOE base rate ( BUT with a collar of 3%!!!!) so I can either take that deal at the end of my fix or shop round for another deal.
Getting a good deal often depends on the LTV so the more equity you have the better the deal.