Fixed or Variable Rate? Future Predictions please

blakefaz

I was wondering if someone could offer some advice with regard to our mortgage. We are about to move house after selling and needing to re-mortgage. I would prefer to take a fixed mortgage, so that I know what is going out every month. After briefly speaking to the bank we have been offered the following options:

• 2 years @ 3.15%
• 3 years @ 3.75%
• 5 years @ 4.99%

Currently, given our circumstances and the current economic climate I am thinking that we should take the 2 year @ 3.15%. The difference between them is around £125 a month. Although I am not too sure??? Any advice would be gratefully received.

Thanks,

Thrugelmir

Look beyond the headline interest rate as well when making comparison.

What are the product fees?

What is the follow on interest rate once the initial term has expired?

What interest rate do you pay on your current mortgage and is your mortgage portable?

smcqis

whats your ltv?

whatyadoinsucka

the base rate is staying low for the next 6 months..
people have argued its going to rocket but it isn't

you've answered your question, "i prefer a fix for safety".
i took a gamble oct2009 on a variable my ltv is now 10% stronger. from overpayments, if i'd taken the fixed rate, yes i'd know what was coming out every month, but I'd have paid for it..

my main question to you. where do you think the base rate will be in 2 years time.
the answer higher. thus when you come out of your two year you'll have to find yet nother fix, pay another fee
and then the rate will be much higher again

just a thought,

I'm sticking to variable for the time being (short-medium term) B.R.+2%

Thrugelmir

whatyadoinsucka wrote: »

I'm sticking to variable for the time being (short-medium term) B.R.+2%

Why not long term?

Fixed rates are unlikely ever to be less than 2% above base. So no benefit by fixing if the outcome is you lose you lifetime SVR.

noodle

I've always had fixed-rate mortgages, because I like to set my payment at a number I'm happy with, and know that nothing is going to mess that up.

I agreed to my current deal just before the rates started to drop - and at the time there were as many people expecting rates to go up as there were expecting them to go down. In hindsight, I made the worst possible decision. Not only did I not benefit from the rates falling, I am incurring early repayment penalties because - for reasons unforseen at the time - the deal is unlikely to even run it's five year fixed term.

However, as annoying as all this is - I'm content that I made the right decision because, at the time I made it, I wanted assurance.. instead of trying to second guess what would happen to interest rates, I settled on a rate and a monthly payment that I anticipated I would be confortable with for five years. I got what I wanted, and shouldn't be too bothered by the fact that a different decision would have given me a whole lot more - when at the time it was all guesswork!

Banks price in their belief about what will happen to rates - they want to do equally well out of you whichever option you choose. You can, of course, make different assumptions to them and try and 'beat' them.. but is it wise to do that when your home is at stake?

Thrugelmir

noodle wrote: »

Banks price in their belief about what will happen to rates -

Lenders price money based at the cost to them for the duration of the fix.
With sufficient margin to make a profit.

Margins on mortgage lending are to low for lenders to be speculative.

whatyadoinsucka

noodle wrote: »

I've always had fixed-rate mortgages, because I like to set my payment at a number I'm happy with, and know that nothing is going to mess that up.

my variable mortgage has a set payment too
i pay a £1,000 a month, and my direct debit is £435 (cap repayment), the excess above the mortgage is then instantly transfered to the mortgage account.

noodle

Thrugelmir wrote: »

Lenders price money based at the cost to them for the duration of the fix.
With sufficient margin to make a profit.

Margins on mortgage lending are to low for lenders to be speculative.

Oh, absolutely.. but the cost to them takes into account forecasts about what rates will do. The price of a bank securing appropriate funding for a five year fix is influenced by assumptions of future rates.