High SVR after fixed term ends

QWE_2

Hi guys I am trying to decide between two 10 year fixed rate mortgage deals.

1) 4.99% with £1495 fee. Remains at SVR 4.99% after 10 years. APR for comparison over 25 years 5.3%. Only available through direct application to building society.

2) 4.84% with £1995 fee. Reverts to SVR 5.99% after 10 years
APR for comparison over 25 years 5.6%. Only available through our whole of market independent commission based mortgage broker.

We have been advised by our mortgage broker to go with the second option as the monthly payments (in fixed periods) are marginally cheaper despite the extra £500 initial fee. He also said that the higher SVR at the end of the 10 year period is irrelevant as we would renegotiate a new mortgage deal in any case.

I am concerned that the second deal is weaker than the first because of the higher SVR at the end but our broker is recommending the second deal as he stands to make commission on it.

Many thanks in advance

betmunch

you can only control the fied rate not the SVR afterwards, there is no reason why deal 1 cant go to 5.99% and deal 2 to go to 4.99% by the time you get to them.

I would look at the total cost over the 10 year fixed term as that is all you have control over.

Having said that its whats important to you that matters.

Do you want to make a decision now on something that will occur in 10 years time and could be completely different by the time it rolls round?

getmore4less

Follow on rates are important.
To ignore them is bordering on negligent.

You cannot asume you can remortgage or it will be cheap to do so.
Both of these are relatively high.

You have to assess the merits of each as lenders vary on how they tend to change there SVR some are consistantly competative some not.
A tracker rate is usualy a better option because the rate is out of controll of the lender.

The amounts owing at the end of the fix and the followon need looking at to complete the analysis of the deals


To do a like for like you need to add the fees(or the difference to one) to the amount borrowed and set the payments the same and see what you are left with after 10 years.

How much are you borrowing over what term(asume 25 from the post)?

eg over 26 years and £100k.
1. £100000 @ 4.99 £584.01
2. £100500 @ 4.84 £578.18

Pay £585 after 10 years to make them like for like.
1. £73,745.46
2. £72,841.04

A saving of around £900
on a ballance of £70k ish and a 1% differential in rates, if you could not remortgage then this saving is wiped out in just over 15months.

betmunch

getmore4less wrote: »

Follow on rates are important.
To ignore them is bordering on negligent.

You cannot asume you can remortgage or it will be cheap to do so.
Both of these are relatively high.

You have to assess the merits of each as lenders vary on how they tend to change there SVR some are consistantly competative some not.
A tracker rate is usualy a better option because the rate is out of controll of the lender.

The amounts owing at the end of the fix and the followon need looking at to complete the analysis of the deals


To do a like for like you need to add the fees(or the difference to one) to the amount borrowed and set the payments the same and see what you are left with after 10 years.

How much are you borrowing over what term(asume 25 from the post)?

eg over 26 years and £100k.
1. £100000 @ 4.99 £584.01
2. £100500 @ 4.84 £578.18

Pay £585 after 10 years to make them like for like.
1. £73,745.46
2. £72,841.04

A saving of around £900
on a ballance of £70k ish and a 1% differential in rates, if you could not remortgage then this saving is wiped out in just over 15months.

Hang on a mo, to say the saving on the lower fixed deal will be wiped out in 15 month you are assuming the follow on rate will be the same or the difference between the 2 will be the same. You dont know this is correct.

I see your point entirely, but I still feel its best to plan for the time you have control over.

Either way there will be winners and losers.

Wh05apk

There are far more important things to consider than the possible SVR in 10 yrs time, there is probably more chance you may want to move within 10 years, so is the mortgage portable, will the lender still be lending, are you borderline in terms of qualifying now - so if they become more restrictive they may decline if you wish to move? What are the ERC's

Obviously the term and amount of the mortgage are important, but the SVR is pretty insignificant at this time, 3/4 years ago most lenders had pretty much the same SVR, it is only since base has dropped that SVR's have become so different, I "suspect" as base rises again, lenders will start to converge again?

getmore4less

betmunch wrote: »

Hang on a mo, to say the saving on the lower fixed deal will be wiped out in 15 month you are assuming the follow on rate will be the same or the difference between the 2 will be the same. You dont know this is correct.

I see your point entirely, but I still feel its best to plan for the time you have control over.

Either way there will be winners and losers.

I agree a lot can change in 10 years, thats part of the risk assesment why just ignore it on the premise it OK I can remortgage.

In this case you have the factual information where you will be in 10 years time if you keep paying

You then assess the follow on cases, a smaller mortgage would swing it towards the higher rate.
personaly I think £900 saving and 15 months is OK so I would take the savings, for a couple of hundred I might hedge the risks.

What is missing are the penatlies for early exit these are also criitcal.

What happens if you have to sell.

Another data point in the example I have given is the break even date.
for this example it is around just under 4 years.

Thrugelmir

Is the arrangement fee paid being upfront or added to the mortgage?

getmore4less

Thrugelmir wrote: »

Is the arrangement fee paid being upfront or added to the mortgage?

It makes no(tiny) difference to the calculations of which is best

Wh05apk

getmore4less wrote: »

It makes no(tiny) difference to the calculations of which is best

As we still have no idea of the mortgage size/term/plans of the op, whether the fee is added is trivial.

getmore4less

Wh05apk wrote: »

As we still have no idea of the mortgage size/term/plans of the op, whether the fee is added is trivial.

Size of the mortgage makes little difference to the comparitive results with the fee added or not.

You either have the money or you don't.

The difference in fees is £500 so you add to one mortgage or take it off the other then run the 10y forcast to get comparitive results

Take the £100k example where we paid £1k of the fee but added £500 to just one loan


Pay £585 after 10 years to make them like for like.
1. £73,745.46
2. £72,841.04

Difference £903.42

Now do the same adding the full fee for the £101k/101.5k mortgage payment has to go up to £590

1. £74,614.84
2. £73,692.22

difference £922.62

So £19 over 10years


the same for a £50k/£50.5k(payment 292) and £51k/£51.5k(298pm)

1. £36,950.33
2. £36,902.75

difference £47.58

1.£37,664.51
2.£37,599.96

difference £64.55

still less than £17 over 10 years

So halving the mortgage makes £2 difference over 10 years


Contrary to a previous post that said £85k is the break even is under £50k

betmunch

getmore4less wrote: »

I agree a lot can change in 10 years, thats part of the risk assesment why just ignore it on the premise it OK I can remortgage.

I wasnt ignoring it on the premise you can remortgage, I was ignoring it on the premise it is unlikely to be accurate, so plan for the bit you have control over.

If you recomend a deal to a client based on the fact it is cheaper when the client gets to the SVR, but by the time you actually get to that SVR the situation has changed and the other deal would have been cheaper at that point, then surely you are leaving yourself wide open to a claim?