Panicking about variable rate mortgage

heatherberry2009

Hi there, I am hoping for a bit of advice. I have recently bought my first property and I was advised to get a variable rate mortgage for 2 years by my mortgage adviser (in October). After reading some of the posts on this site I am now panicking that it was a bad mistake and I should have went for a fixed rate and I am worried that my monthly mortgage payment will rocket.

Hopefully I will be ok and this will be just a panic, but if the payments do rocket too much for me, do lenders allow switching to fixed rate or do I have to wait until my 2 years is up before I could do that?

Hope this makes sense! Any advice gratefully received

ILW

If the variable rate was to rocket, so would the fixed rates. Its all a bit of a gamble which some win and some lose.

Vis05

heatherberry2009 wrote: »

Hi there, I am hoping for a bit of advice. I have recently bought my first property and I was advised to get a variable rate mortgage for 2 years by my mortgage adviser (in October). After reading some of the posts on this site I am now panicking that it was a bad mistake and I should have went for a fixed rate and I am worried that my monthly mortgage payment will rocket.

Hopefully I will be ok and this will be just a panic, but if the payments do rocket too much for me, do lenders allow switching to fixed rate or do I have to wait until my 2 years is up before I could do that?

Hope this makes sense! Any advice gratefully received

You will be fine as long as you did the simple basic calculation as to whether you could afford the variable rate if interest rates went up to say what the average has been over the last 20 years or so. Normal sort of stuff one would do when borrowing a lot of cash. If you can't afford to pay 7-8% then you have taken a huge gamble. Or been badly advised (for which you will have very little recourse - you do have a responsibility to do your own maths on these things).

If you didn't/can't afford that well then you may have a problem in due course because rates will go up. Nobody is certain by how much, but they will go up.

However, depending on the terms of your deal you may be able to remortgage now into a fixed rate deal with your existing lender. However to do so you may have to :

a) pay a higher rate now than you are paying on the variable. A fixed rate deal will always be at a higher rate when lenders expect rates to go up over time. Since rates really can not go any lower than they are it follows that a fixed rate deal will cost more in the short term come what may. The question you have to answer is whether you think that in the medium to long term you will be better off because variable rates will go up past the rate you are able to lock into now.


b) fund some kind of redemption fee on the variable rate deal

c) fund some kind of arrangement fee on a new fixed rate deal.

If you don't have the cash for b) & c) then they may allow you to add it to the mortgage provided you arn't already stretched to the limit.

I would suggest you ccontact the lender & just ask them what the options (and costs) might be to convert your loan into a fixed rate & see what they say. If they will do it then look at the rate versus what you think the SVR might be over the period of the fix & do the maths.

Vis05

ILW wrote: »

If the variable rate was to rocket, so would the fixed rates. Its all a bit of a gamble which some win and some lose.

:huh::huh::huh::huh::huh:

If she fixes/locks into a rate now, it won't change over the contracted period regardless of what the Variable Rate does - that's the whole point of being in a fixed rate deal!!

It will be at a higher rate than the SVR now but the question is what the SVR is going to do in relation to whatever FR she can get today.

opinions4u

heatherberry2009 wrote: »

I am hoping for a bit of advice. I have recently bought my first property and I was advised to get a variable rate mortgage for 2 years by my mortgage adviser (in October). After reading some of the posts on this site I am now panicking that it was a bad mistake and I should have went for a fixed rate and I am worried that my monthly mortgage payment will rocket.

What you haven't explained is why your broker, who has already given you some advice, has recommended a variable rate. What were the reasons laid out? It's quite relevant. What rate are you on? Does it track anything? How much was a 2 year fixed rate at the time?

Hopefully I will be ok and this will be just a panic, but if the payments do rocket too much for me, do lenders allow switching to fixed rate or do I have to wait until my 2 years is up before I could do that?

Being able to change to a fixed is uusally possible and usally carries a raft of costs if you do it while tied in to an existing product.

Most lenders have fixed rates that are more expensive than their tracker rates at the moment. To fix would typically cost you 1%-2% more. One option you've got is to "pretend" that you are on a fixed rate that is slighlty more expensive and start saving the difference between that pretend fix and your current monthly payment.

That way you will be building up a contingency fund to help you adjust to higher payments as and when your mortgage rate increases.

Hope that helps.

heatherberry2009

Thanks for getting back to me. The best fixed rate I could get at that time was 5.99 and my variable rate at the moment is 4.69. The mortgage broker explained to me that it would be unlikely that rates would rise enough for the variable rate overall cost for 2 years to be higher than the fixed rate of 5.99% overall cost for 2 years. Does this sound about right to you?

It was my first time buy and I feel really worried that I have done the wrong thing. Is it worth me getting in touch with my lender to see if they will transfer me to a fixed rate which I think is around 6.60 at themoment?

Thanks again. I will certainly take the advice of saving some money seperately in case I need it for mortgage payments

oli_ro

heatherberry2009 wrote: »

Thanks for getting back to me. The best fixed rate I could get at that time was 5.99 and my variable rate at the moment is 4.69. The mortgage broker explained to me that it would be unlikely that rates would rise enough for the variable rate overall cost for 2 years to be higher than the fixed rate of 5.99% overall cost for 2 years. Does this sound about right to you?

That was his view and it was ultimately up to you to buy into his view or to ignore it. Nobody knows for sure(at this moment in time) whether this was right as we cannot predict how the interest rates will move. For what its worth, I would have made the same choice, based on the same bet. (that even if rates raise, over 2 years I would be better off with the tracker)

Radiantsoul

I am not sure it is really worth fixing now as you have made your choice and are currently "in the money" versus a fixed rate. If you can't afford interest rates going up more than a couple of percent then you probably should have got a fixed rate though...Over two years it is not that important though as a two year fix would only have given you two years of protection against soaring rates.

heatherberry2009

I worked out that at £40 rise per % (as outlined in my mortgage agreement) I can afford it to go up 3% (therefore £120 more than I am paying currently) at a push 4% rise. After that I would possibly need to switch to interest only. I know it is hard to predict these things but I am sad to say I am a complete dunce when it comes to this sort of thing and I thought that it would be unlikely (again hoping more than knowledge - which is why I feel stupid right now) to rise more than this in 2 years. Then I read some comments here about possible steep rises like 7-8% in the next year (again I know this is not for certain and no one can know) BUT in your opinions is it likely that we could see a 3% rise in the next 2 years? Or am I giving myself a high blood pressure for something that is very unlikely?

Thanks for your replys, much appreciated

oli_ro

Nobody can tell you this sort of thing because it is impossible to predict.
All the so-called experts/analysts and their projections are just a waste of time. (Just look at their track record. Or go back to 2007 and see how many predicted that in 1-2 years the benchmark rate would be 0.25)
You are doing the right thing in preparing for this possibility, but in my oppinion you are worrying too much.

heatherberry2009

Thanks oli_ro - I think what I am looking for is for someone to predict the future for me and tell me everything will be ok which I am not going to get. What I have learned in this short period of time since I got my mortgage is that next time I am going fixed rate as at least I will have complete peace of mind of what my out goings will be!

Thanks again

Heather