swap to a 5 year or 10 year fix?

getmore4less

I use www.whatsthecost.com

(as with any mortgage calcs they real values will be a little different but not far off)

OK we have £253k 28.5 years 342 months
options (with normal payment adding fees)
1. 3.10% tracker(£1115pm)
2. 2.89% 5 fix £1k fee(£1091)
3. 3.89% 10 fix 1.5k fee (£1233)

Setting the payment the same for all the deals lets go with £1230pm
After 5 years(assume the rates don't move then jump at year 5 other combinations or rate rises can be modelled)

1. £215,642.71
2. £214,140.37
3. £227,723.87

in 10 years option 3 owes £195,209.04

So if the other two are to end with the same amount owing with the same payment they can have a higher rate than before

1. 5.180% (£195,205.51) +2.080%
2. 5.346% (£195,203.73) +2.466%

(larger mortgages do not benefit as much from the overpayments so the 8% guess was way off)

The other potentially interesting date is the break even for the £1k fee against the tracker this is after 2years of the fix(Feb 2016).

Missing info is what the follow on rates are?

So down to where you think rates will go, the 5 year fix looks a better bet over the tracker if the follow on is reasonable.

darkcamel

getmore4less wrote: »

So if the other two are to end with the same amount owing with the same payment they can have a higher rate than before

1. 5.180% (£195,205.51) +2.080%
2. 5.346% (£195,203.73) +2.466%


Missing info is what the follow on rates are?

So down to where you think rates will go, the 5 year fix looks a better bet over the tracker if the follow on is reasonable.

firstly follow on for 5/ 10 year is BR+3.39%. I imagine I would be remortaging onto something better at the end of each deal.

second, are you saying that for 2)., the 5 year, rates could go up 2.466% and still would be better than the 10 year?

third, the way i calculated my comparison, was based on totalling total costs on the what i would pay monthly if IR rose according to current swap rates at years 1,2,3, 5, 7, 10 and incremental increase in rates in between - i.e. comparing total paid on the tracker, compared with the total cost of the other two rates including fees, over 10 years- so in years 6-10, I would stand to save more on the 10 year, over the tracker and the 2nd 5 year fix, assuming a mortgage rate of 5% for the second 5 year fixed rate, assuming rates go up 2% by year end 5. is this completely wrong?

getmore4less

darkcamel wrote: »

firstly follow on for 5/ 10 year is BR+3.39%. I imagine I would be remortaging onto something better at the end of each deal.

That's currently the same as the 10y fix rate

second, are you saying that for 2)., the 5 year, rates could go up 2.466% and still would be better than the 10 year?

Yes but the follow on will use up some of that so base rates up by 1.456%

third, the way i calculated my comparison, was based on totalling total costs on the what i would pay monthly if IR rose according to current swap rates at years 1,2,3, 5, 7, 10 and incremental increase in rates in between - i.e. comparing total paid on the tracker, compared with the total cost of the other two rates including fees, over 10 years- so in years 6-10, I would stand to save more on the 10 year, over the tracker and the 2nd 5 year fix, assuming a mortgage rate of 5% for the second 5 year fixed rate, assuming rates go up 2% by year end 5. is this completely wrong?

You can't just use what was paid, you have to look at what is owed at the end.

Easier to make the payment the same throughout and then track the changes and see what is left.

If the payments are different you have to track what you do with the extra eg what will saving rate do during the same period.

dimbo61

A £253K mortgage is for me HUGE !!! and you must have the income when you applied to your lender to afford that? 5X Income?
If you take the 10 year fix you have security for a very long time and rates WILL GO UP it is just WHEN!
At the same time you will still have a £195K mortgage in 10 years and you will be 10 years older and closer to retirement unless the government can get you to work till you are 68/70.
If you think you may struggle to pay £1100-1233 should you not look at buying somewhere cheaper? or moving to a cheaper area.

darkcamel

dimbo61 wrote: »

A £253K mortgage is for me HUGE !!! and you must have the income when you applied to your lender to afford that? 5X Income?
If you take the 10 year fix you have security for a very long time and rates WILL GO UP it is just WHEN!
At the same time you will still have a £195K mortgage in 10 years and you will be 10 years older and closer to retirement unless the government can get you to work till you are 68/70.
If you think you may struggle to pay £1100-1233 should you not look at buying somewhere cheaper? or moving to a cheaper area.

3.75 joint times income, then. no kids, and no plans for them either and 2 incomes.
didnt say i would be struggling on a rate of 3.89% at £1233, thats quite affordable. what i meant was at the end of the next fix, if rates were say 5% or higher then £140 overpayment on top of that. any wage rises for both of us will make it more affordable.

you are right to say the 10 year offers security, and avoids remortgaging in 5 years time, possibly when they tighten up even more. however a 5 year fix will enable me to over pay and potentially take 4 or so year off the term.

getmore4less

£253k/3.75 = £67.5k net income between £3800 and £4200

If biased towards a 40% taxpayer then there is likely to be long term benefit in pension planning with the excess and worth considering in the future if not there yet.

Might also be worth a review of priorities and have a serous look at the full budget for say10 years and look at where your money goes and plan where you are going to spend the £30k net after the mortgage.

It is very easy to fritter money away(not getting good value for it) when there is plenty of slack.

If not already doing it a spending diary can be a way to focus, many people find they save £100s just by tracking.

As things are you are both 28 year wage slaves not a problem if you are happy with that but what would it take to say bring this down to 20 years could you live with the change in spending profile to achieve this.


OK this has gone away from the mortgage but big picture is important

develop a plan for the wage increases I think a good plan is to save the first year of extra money(no change in life style) then review.

One thing you need is a very good emergency/disaster fund/plan should loss of income happen.