Probs a silly question about mortgages....

TheHamill3

Hi All,

I am looking to recieve around 15k from a parents house sale. I will be looking to buy a house in the next year or 2, but i am confused (doesn't take much)

First of all when looking at the different types of mortgages, i've come across the Fixed rate mortgage, I'll just post this one as an example
"5 year fixed rate, Initial deal is 6.09% for 5 years, then the follow on is 4%, with a 10% deposit"

This is the silly question, why on earth would you want a higher % rate? i mean, wouldn't you want the % rate to start off at 4%?

Please tell me i am not the only person to think this, or am i just that stupid?

Thank you for any replys i recieve,
Mike

kingstreet

What it is actually showing you is that the payments will be fixed, based on that rate, for the initial period. After that, the rate will revert, possibly to the lender's standard variable rate, possibly to something else, if you do nothing. You are being told that rate is currently 4%. It may not be in five years time. It might be 3%, it might be 8%. When you get a key facts illustration it will show you the impact of a 1% rise in the rate for your mortgage.

If you choose to, you can, at the end of the fix, approach the lender for another offer or look at remortgaging to another lender if it is advantageous to do so.

beecher2

I'm sure you would want the follow on rate to be lower, but it is the lender who sets the rates. The follow on rate is variable so after 5 years it may well be higher than the 6.09% anyway. The initial rate is so high because presumably the LTV is above 90% so it is a bigger risk to the lender than someone with more of a deposit.

TrickyDicky101

Hi Mike

The follow on rate isn't fixed - it will be a variable one and what you are reading is that it is 4% at the present time. It will most likely rise in step with rises in the BoE Base Rate. So you are getting reassurance that for the period of the fix your rate will be X% and will not change.

TheHamill3

AAAAAA right Thank you very much you 3.

TheHamill3

I take it there is no such thing as a long term fixed rate mortgage?

And sorry more questions but which would be the least risk mortgage, but also a good value mortgage? or is there no such thing, because obviously the better value mortgages carry more long term risks in the future? (have i just answered my own question lol).

beecher2

You can only really tell if a mortgage has been 'best value' in hindsight. No-one knows when base rates will rise - that's where the risk comes in!

I think 5 year fixes are the longest atm, there might be some 10 year fixes out there so they will have high ERCs if they exist.