Will there ever be a situation.....

Thrugelmir

rothers wrote: »

I will read it again, but I don't remember a get out clause.

Cheers

Not a get out clause as such. More a variation of interest charges.

Pincher

People with ultra-slim trackers are like people who have bought a Put option that's in-the money, but you can't sell it, because you need a house to live in.

Theoretically, what you want to do is to buy a Call option on the BOE rate for hedging (not speculating). The idea is that, if the BOE goes up, you pay more on the mortgage, but you get your money back by selling the Call Option. The problem is, regular people don't have access to long term hedging instruments cheaply.

If I could, I would much rather spend the £999 arrangement fee on getting a five year term Call Option (or futures contract) on BOE. Effectively, it's an insurance policy against BOE rate going up, for which there is an insurance premium. The amount per basis point you buy is proportional to your mortgage size, so it's very easy to unitise. So if you have a £100,000 mortgage, you buy 100 options, and if you have a £570,000 mortage, you buy 570 options.

The beauty is, you never have to switch mortgage, incurring survey, conveyance, arrangement fees. It's a purely financial instrument that allows you to lock in rates on your own terms.

rothers

Pincher, that is interesting. Could you please tell me more about it and how, if indeed I could, take one out.

Also, roughly how much would it cost me for a £100k mortgage.

Thanks in advance.

JimmyTheWig

At any given time, fixed rates will only be lower than variable rates if the banks think that rates are coming down over the period of the fix.

If rates go up tomorrow then getting a fix today might be a good idea. But given that you don't know what rates are going to do in the future that becomes a little pointless.

Generally speaking, however, I believe with a fixed rate you pay a premium for the safety net of the fix. So long term, variable is likely to be cheaper.
But you should only take the variable rate if you can afford what it might realistically rise to. If you can't then fix and pay the premium.

If your £500 overpayment is on top of your regular repayment then I don't think you have to worry. With a £100k mortgage you can afford a 6% rise in interest rates. The chances are that by the time that ever happened you would have drastically reduced your balance and so could afford an even bigger increase.
So for you I don't see the point in an insurance policy against rising rates - be it with a fixed rate mortgage or hedging, etc.

VIGILANT22

rothers wrote: »

Pincher, that is interesting. Could you please tell me more about it and how, if indeed I could, take one out.

Also, roughly how much would it cost me for a £100k mortgage.

Thanks in advance.

Yr going to start trading!!!!....

rothers

Cheers guys, I could afford for interest rates to go to 10% (although I'd be gutted!). I think that my lifetime mortgage will be just that, for life!! (Well, for the 16yrs remaining!!)

Batchy

I'd be chuffed to have a low rate... even more chuffed to have a lower mortgage too... be thankful, your only exposed to interest rate rises... but let be honest, they arn't going to get any lower are they?

if you could fix at say 3% for the next 16 years or lower... WOULD YOU, this would be my goal, investigate where you can fix rates for the next few years at ?

That would be my goal and would be my comparison... ELIMINATE RISK...

There is every chance interest rates could rise substantially...in the future, that could be over the next 2 or 25 years... who knows... no one really does!! the only thing you can do is ...
1 take a chance... stick with variable
2 take no chance and fix

depends how much of a risk taker your are as to what option you take.

IMO the rate setters did not lower rates so you would pay less now, they did it so you would fix now at a lower rate, to safe guard your future outgoings. If you don't... and you hit problems when the raise rates over what you expect, please don't complain. No offence

You takes your chance... and all that.

Well done thou, and hope you make a positive choice for you and your family. whatever it may be.

rothers

If I could get a 16yr fix at 3% or lower I would bite their hands off! The problem is that 5yr fixed are pushing 5% now (with a £999 fee!). Interest rates will hit 5% (and more!) but knowing when is the key. If they were to go to that this year then it would make sense to fix now. If they didn't go to that until four years from now then it would be cheaper to stay on the tracker.

If the banks thought that they would go up to 5% in the next couple of years then I believe that 5yr fixes would be more expensive now. If I was on a SVR I would be more tempted to fix but, as it is, with all the fees, surveys etc (mentioned above) I believe that I will be better off staying where I am.

Charterhouse

You can't get call options on BoE base rate, just FYI.

Pincher

rothers wrote: »

Pincher, that is interesting. Could you please tell me more about it and how, if indeed I could, take one out.

Also, roughly how much would it cost me for a £100k mortgage.

Thanks in advance.

like I said, you can't do it cheaply.

We are not professionals, so have no access to interest rate swaps and other instruments. The spreadbets are not really viable, unless you KNOW the interest rate will shoot up in a short period, and NOBODY else does. The deposit for margin is in the thousands, which most people can't afford.

Other countries are able to come up with 25 year fixed rates, which is what a lot of people want as well. This fixing and tracking every two years non-sense is just the financial industry's way of fleecing us.

Now that the EURO is coming down, and steriling going up, it's a good time to think about a EURO mortgage.