Libor Mortgages

isouthgate

Does anyone currently have a mortgage which is linked to the u.s dollar libor rate. the skipton b.s. are currently offering a 7 year deal which looks to good to be true. i would be grateful for any advice.

lisyloo

Check out the penalties and tie-ins.

The tie-ins are long and the penalties are high.

It's fine if you are confident that US rates will stay a margin (2%?) below UK rates.
Historically they have stayed lower but it is a risk and it's expensive to get out of if things go wrong.

Also you are tied in for quite a while, so if an unexpected windfall comes your way (inheritance?) then you can't pay off the mortgage (although I believe there is some scope for repayments).

The charges are also fairly high.

The $64 million question is - are you happy taking the risk of tying yourself to US rates for 7 years.
No-one can really predict interest rate movements that far ahead, so it is a risk.

suzy-wong_5

no, they do not allow overpayments.

lisyloo

OK I might be confusing it with another one.
Accord mortgages were offering something similar and I believe that one offered oevrpayments (or one of them did).

I don't know whether Accord are still doing it.

In my view if there are no overpayments possible then that makes it more risky (because you cannot reduce your exposure) and less flexible.

suzy-wong_5

what is the web site for accord mortgages

lisyloo

http://www.accordmortgages.com/

They do a 5 year US libor tracker which is US libor + 1.99%.

I don't know how it compares with the Skipton one.

Turbo_4

The rate will go up soon as it is re-calculated every three months (next time being the start of September) using the current 3 month Libor rate of 1.78%

http://www.bloomberg.com/markets/rates/index.html

This would give a mortgage rate of 1.78 + 1.87 = 3.65%

Also the yield for a seven year US bond is about 3.75% which would give an average rate of 5.62% over the seven year tie-in is the money markets are correct.

However the UK seven year bond is yielding 4.96% currently and you should be able to get a UK tracker mortgage at around or slightly above the UK interest rate.

So it appears that the US Libor tracker mortgage is atleast 0.5% worse off than a UK tracker mortgage, plus there are banks/building societies that offer alot more flexable features including overpayments and shorter tie-ins with a UK tracker mortgage.

Unless you want to take a gamble that the US rates wont rise as fast as the financial institutions recon, then I would stick with a UK tracker.

yonk

Have a look at this thread if it is the US Dollar mortgge you are considering....

sisfis

which thread ?

sisfis

it does look too good to be true, it also looks so good id be a fool not to ask ...

i dont envisage paying my mortgage off or making overpayments in the next 7 years so the tie in/penalties dont worry me so much.

the only time to jump ship would be if the wheels fell off the us rate right ?

it does look too good to be true so does it mean i must be missing something obvious ?

lisyloo

it does look too good to be true so does it mean i must be missing something obvious ?

Well, the best rate you can get in the UK is about the base rate.
The best rate you can get for the US is around UK libor plus 2% (approx).

Therefore I think the thing that you are missing is that there is no guarantee that US rates will stay 2% below UK rates.

It might look good right now, but what about the res of the 7 years.
If you compare past history you will see that the US libor has NOT been consistently 2% below UK rates, so there will be times when you would be better off on UK rates.

In fact there as a short period when US rates were above UK rates so you will be paying 2% extra in this situation.

At this miute it happens to look good, but that's not guaranteed.

It's a risk.

The question is, do you want to go gambling with your home.

Surely the sensible answer has to be NO.