10 year mortgages

lydriver

I'm a first time buyer, looking to borrow about 40-50k

are 10 year fixed the way to go?

also how do ERC work?

one I was looking at says
Early repayment charge:
£80, plus (6% until 30-06-22, 3% until 30-06-25) of balance repaid


does that mean 6% of what's been paid off gets added as a charge?

mark55man

Normally it would be the balance of the mortgage

Speaking as someone who has done 10 year mortgages I would say you were better off taking a 2-3 variable discount and then fixing for 5-7 years when that expires.

You are paying a premium for the 10 years and you have to consider whether at the end of the 10 years that is worthwhile

My analysis is that getting a cheaper shorter rate and overpaying the difference will leave you able to get a better rate in 3 years for the following 5 years

Obviously if interest rates shot up you would be worse off (and maybe even in some trouble), but I think given where we are economically and the amount of debt the government has, and the flattening of the 30 year yield curve, no one expects interest rates to shoot up

Inflation may edge up (to erode value of debt) but I think interest rates will follow slowly (to maintain cheapness of debt). Should the economy recover strongly then maybe interest rates will move quickly, but equally in that situation you would have to judge whether your salary would also be increasing

In all my 10 year decision probably cost me £200pcm for best part of 3 years until I worked out rates were going nowhere fast. And my rate was cheaper than yours

Hope this helps - it may be the right thing for you to do in your circumstances, but I would say its more likely to cost you much money in the short term and you can engineer the same fied payment security more cheaply in the long term if rates start looking upwards

mark55man

it would help if you could share the likely interest rate as for a relatively small mortgage new product costs could be significant

lydriver

Hi, I'm just going by the results I got from the finder thing on here

I really need to do more researching but thought I'd put a post up here to see what people say...
Rate 2.99% For 121 months, then SVR currently 3.99%
Set-up Fees: £1,209
Monthly Payment £386
MSE Total Cost £4,750 for year 1

that's copy/paste from the comparison thing on this site

that means a fixed rate of 3% ? seems good but the 2 year ones can be under 2%

also not too sure about how overpayments/ERC works - Overpayments allowed = yes but still an ERC applies

superdon

If you are considering a 10 year fix, have a look at TSB. We are in the processing of remortgaging to them. The beauty is there are no early repayment charges after 5 years. Also allow 10% overpayments. Fits our needs perfectly and means we can review things in 5 years.

We have around 70% ltv so we have the 3.39% rate, with no fees at all, free legals and £150 cash back. And so far, they have been really good at getting things sorted.

mark55man

despite what i said at 3% I might be tempted even adding cost of quite a steep fee

you need to play with a spreadsheet and explore options based on current 2-3 year rates vs some options for 5 year rates when that ends and see what the payment profiles and total costs look like - especially if you overpay in first few years

amnblog

A first time buyer who expects to be in the same property 10 years is a rare animal.

PixelPound

Well as a FTB who expects to be the only purchase in my lifetime, glad I'm rare :-D.

If you are only looking at a 50k loan, then fees do play a massive part of it - how much extra per month would a no fee or low fee be as opposed to £1.2k. You don't say what your LTV is as this can have an effect, depending on what it will be after 2, 5, or 10 years e.g. overpayment would bring it down faster.

Finally as you are looking at ERC, then why look at a ten year? Is it knowing that's the maximum rather than likelihood you may need to move /change before its up?

lydriver

yes, no intention of moving
must be the way my mind works, if I can have a figure that I'll pay every month for 10 years then have no mortgage (meaning £3-4xx every month I don't have to find) then that's much more appealing to me than getting cheaper monthly payments with the risk that they might increase

however as I say I need to do more research, it might be the case that it's almost impossible that the payments would increase a significant amount and it's worth the risk

looking at properties around 80k

lydriver

how many times would you be able to take out a new 2 year deal within a 10year mortgage?
I see most mortgages are 25k minimum so it would be 2x 2yr fixed , then a 5 and have to go on to the SVR rate for the last year?

looks like there could be (potential) £4k difference in total cost between chasing the lower rate vs a 10yr fixed, but I'm not sure if I've got that right!

PixelPound

It would be an initial deal, then once the fixed rate was up (or just before?) you can go about going for a new product either with the same lender or with a new lender, in the latter case you will go through new affordability checks etc where as I believe not the case if you stick with the same.

The rate you get on subsequent remorgages will be dependent on your LTV, so if you initially went for a 2 year, how much will have been paid off by time to do a new deal? One idea is overpay by at least you would if ona 10 year then when in 2 years is up you'll have a lower LTV to attract a better rate, so even if interest rates have gone up you should still get a new deal better than the 10 year percentage.

Of course that's dependent on how much rates change. There is the idea, from your post, that going 10 year would mean no worrying over rates when deals end, no having to search for new deals etc, you just have your DD set up and get on with your life. This may well be worth the few extra thousand cost to you, but its up to you. I know the site is "money saving" but there is also time, sanity, and peace of mind to consider