Fixed for life of mortgage?

Catapa

With fixed rate mortgages I feel an information disequilibrium. Banks should have a much better informed expectation of future inflation rates than I will ever have as an individual consumer. Therefore they are in a better position to price their mortgage offering, which makes it suspicious to me. Or do you think that banks compete and get it wrong, too (in which case you would fix an interest rate lower than the future flexible rate)?

SAHD_Jim

Catapa wrote: »

With fixed rate mortgages I feel an information disequilibrium. Banks should have a much better informed expectation of future inflation rates than I will ever have as an individual consumer. Therefore they are in a better position to price their mortgage offering, which makes it suspicious to me. Or do you think that banks compete and get it wrong, too (in which case you would fix an interest rate lower than the future flexible rate)?

I agree with your suspicion!

Lenders will generally have a decent idea of the direction of future rates and so will price this in to their deals. By taking one out you are (imho) betting that they have got it substantially wrong, or that there will be significant unforeseen future events.

After all, the banks are not charities and so aren't in the business of offering products to customers that would potentially reduce their profit margins siginificantly.

SAHD_Jim

lwwhite wrote: »

Just to let you know that such a product does exist but as a new poster I cannot post a link. If you google no1copperpot then you will see they offer a 25 year fixed mortgage for 5.7% and no early redemption charges after 5 years.

Someone posted about ING's 2% + base tracker. With this you would probably be better off for a good portion if not most/all of the 5 year redemption period of the product you describe. If you took all the savings from this and used it to overpay you would reduce the balance or term of your mortgage.

Over the course of 25 years, rates will fluctuate from higher to lower so this type of arrangement only suits someone with poor money management discipline imho.