Choosing between fixed and variable

Yam

I am with L&C and they seem to be 100% sure that I should go with Nationwide but I'm not so sure.

I am borrowing £145k for 25 years on a house which I paid £163k, first time buyer. Both these mortgages come with no set up fees or valuation fees however nationwide comes with £750 cashback.

The nationwide rate is 2.79% fixed.
Leek building society 1.89% discounted from variable rate.
I plan to remortgage in 2 years.

He told me I will save £700 with leek but its not worth it incase of increases, my figures seem to say otherwise, am I doing something wrong?

I calculate it as saving £1800 if the rate stays the same, It will be a similar cost if the rate increase by as much as 1.5%

Have you ever had a variable rate mortgage? Have you had any increase?

My understanding is that it will be hard for a lender to justify increase in the near future with the recent decrease by the BOE.

Thank you for your help.

Canary_Yellow

It's personal preference and attitude to risk in the end.


Your rate is unlikely to go down even though variable, but it could go up. So the question is how much are you willing to pay for the certainty that it won't?


Not sure anyone can answer that for you.

AnotherJoe

I agree with your calculation and your thoughts. I think its exceptionally unlikely that in the next two years, interest rates will rise by nearly 1%. Indeed i think its unlikely they will rise at all, its not in the economies interest (especially with Brexit), its not in the governments, if they are trying to get millions of new houses built, the last thing they want is mortgage rates to rise.

So I'd take the almost certain £1800 over a tiny chance of a tiny saving, since even if rates rose 1% later this year and theb 1% next year (and Mark Carney has said if and when they will go up, it will be gradually in 0.25% increments) you'd still be ahead

Remember to thank me in 2 years time. Pay a fiver to your favourite charity in my name .

getmore4less

Get the calculations in writing.

steampowered

If the Leek rate is actually 1.89% (not 1.89% discount from their standard variable rate), that sounds like quite a big difference to me.

I personally went with a 2 year fix but for me the difference between a 2 year fix and the variable rate was pretty tiny. If I was presented with your figures I think I'd choose the 1.89%.

You also need to factor in the impact of any fees charged by the lender. Leek's fees might be higher.

Thrugelmir

Yam wrote: »

I plan to remortgage in 2 years.

Have you factored in all the costs of switching to a new lender?

Why are you looking only at 2 year products?

getmore4less

2 year products are often a lot cheaper and enough to save the fees and pay the next set of fees.

Yam

I think I have cleared it up; I believe L&C are telling me I am saving £700 because they are just looking at the difference in repayments, about £70 a month which is not an accurate way of calculating true cost.

At the end of the two years there will be a difference in the balances between the two mortgages, I will pay off more capital with Leek in the first two years, I believe this is to do with the fact that Nationwide has a much cheaper rate after the initial 2 year period.

To answer your question about my choosing of a 2 year mortgage; Once my two year period is up I will have access to better deals due to improved LTV as I should be able to save quite a bit of money, they also offer better rates if you are happy to take a bit of risk. The Leek mortgage also allows me to leave at any time with no ERC.