Fixed or variable? Interest rate change???

Pin_Head

Hi

Like the masses very confused over mortgage. I have seen an attractive 5 yr fixed at 3.69% (overpayments upto 10% pa). In comparison I have seen a discount at 3.69. Which woudl you go for.

Intending to overpay about 10K a year. Like the security of a fixed. Like my savings in interesting places like premium bonds, shares, isa's etc

Interest rates must go up in the next 5yrs, surely?

R_P_W

well if the fix and the variable are the same % go for the fix?

No one can be sure of anything

hillcats

What are the follow on rates for each one?

bowlhead99

Even if there's a further reduction to base rates or they go negative for a brief time, I think most people see them as higher in a few years from now, so I would take the fix. If it was only a 1 or 2 year deal maybe not and it might come down to arrangement fees.

hillcats wrote: »

What are the follow on rates for each one?

If the fix/discount is for as long as 5 years, is it really relevant what figure they say, for the "followed by our standard variable rate, currently x.xx%"?

Should a prospective mortgagee be at all interested what these rates are, given that by the end of summer 2017, lender A's rate for people coming off fixes might be 0.1% cheaper than B, even though it's currently 0.3% higher?

I suppose it's indicative of what the price difference might be, but one lender's appetite or capacity to lend in 5 years might be relatively different to what it is now.

Just thinking out loud as I'm likely to be comparing deals for myself later this year.

sammyjammy

bowlhead99 wrote: »

If the fix/discount is for as long as 5 years, is it really relevant what figure they say, for the "followed by our standard variable rate, currently x.xx%"?

Should a prospective mortgagee be at all interested what these rates are, given that by the end of summer 2017, lender A's rate for people coming off fixes might be 0.1% cheaper than B, even though it's currently 0.3% higher?

I suppose it's indicative of what the price difference might be, but one lender's appetite or capacity to lend in 5 years might be relatively different to what it is now.

Just thinking out loud as I'm likely to be comparing deals for myself later this year.

Personally I think only a fool would ignore the follow on rate for a mortgage, unless you are pretty good with a crystal ball nobody knows what the future will bring, you don't know hwat financial situation you'll be in at that time or if you'll be able to remortgage at all, if fate went against you you could be stuck on that follow on rate fora long time.

bowlhead99

sammyjammy wrote: »

you don't know hwat financial situation you'll be in at that time or if you'll be able to remortgage at all, if fate went against you you could be stuck on that follow on rate fora long time.

Sorry if I wasn't making myself clear. I completely understand that when you come off a fix or discount period, you might have no other option apart from staying with the existing lender.

But the point I was getting at was that the standard variable rate that they will put you on after the deal, is whatever variable rate that particular lender is offering in autumn 2017. It's variable and not in any way guaranteed. The followon rate they display on their website now is a snapshot of what is available to someone leaving their fix or discount product now. It may be different by the end of this year, or next year, and will almost certainly be different in 2017.

It varies due to bank base rates, and a bunch of other factors which vary by lender, such as their general capacity for lending (strength of their own balance sheet), how much of it they want to have loaned on mortgages versus unsecured loans etc, and how keen they are to match or beat rival lender's rates.

So, RBS has a fix with a variable follow-on rate currently showing 4% "variable", and Halifax has a discount with a "variable" follow-on rate currently showing 3.99%: those rates are going to change and when you need them in 2017 you may find that RBS is 2.8% to Halifax's 2.95%, or RBS is 6.8% to Halifax's 6.99%

sammyjammy wrote: »

Personally I think only a fool would ignore the follow on rate for a mortgage

I agree if we are talking about a fix for a year and there are 24 years left of your 25 year mortgage, you would be foolish to ignore what rate they'll put you on if you don't or can't take another deal.

But when the fix is for 5 years, the follow-on rate on the advertising billboard today, which is described as variable, is much less likely to stay at that same number as it was in the 1 year example. Not only will the number be different, but its relative competitiveness to other lenders (e.g. Halifax being 0.01 better than RBS) will very likely change (Halifax may be 0.20 better than RBS or perhaps 0.15 worse).

sammyjammy wrote: »

, unless you are pretty good with a crystal ball nobody knows what the future will bring,

My point exactly. I'm tempted to flip your "only a fool would ignore..." comment back on itself and say "Only a fool would take notice of... the follow on rate". I wouldn't go as far as that, because the followon SVR quoted by lender A now might be useful as a guide to how cheap they are in general to their rival lender B, and if it stays that way, it's worth considering.

But nobody knows if it will stay that way for 5 years and if the follown rates are broadly similar (and hopefully you've already assessed whether you can afford them to rise by a substantial percentage), you might as well ignore them.

Or am I being thick here?