Ditch My fix for 10 year 2.49%

GDB2222

amnblog wrote: »

Well you get to pay about £13,000 extra in the first two years whilst you wait to find out if your gamble pays off.


That would be my concern.

But it's the very opposite of a gamble, isn't it? The OP pays an extra £13k so as to avoid gambling about what interest rates will be after the first two years are up. Think of it like an insurance premium.

It may not be the cheapest route overall, but it's the least risky. That's worth paying for. Just how much it's worth paying is a far harder question.

getmore4less

GDB2222 wrote: »

But it's the very opposite of a gamble, isn't it? The OP pays an extra £13k so as to avoid gambling about what interest rates will be after the first two years are up. Think of it like an insurance premium.

It may not be the cheapest route overall, but it's the least risky. That's worth paying for. Just how much it's worth paying is a far harder question.

if rates never moved then the total "premiums" over 10years would be not far short of £38k.

GDB2222

getmore4less wrote: »

if rates never moved then the total "premiums" over 10years would be not far short of £38k.

I am talking about risk. If your house never burns down, you'll make a loss on your fire insurance.

getmore4less

The assumption fixing is low risk is a very common error all it does is change the risks and could well be a higher risk option once properly analysed.

I was throwing out an upper number for the question.

Just how much it's worth paying is a far harder question

GDB2222

Can you explain that a bit more please.

getmore4less

depends on what risks you are trying to manage and trade off.

If the only one is "a payment can't go over X" then fixing can remove that and for some that is the critical risk that needs eliminating.
but if at the limit you introduce a new risk that you no longer have the lower payment from a lower rate as an option(for op £230pm).

If you are looking at amount owing and analysis shows that there is a 25% chance the rate changes will result in owing more at the end by not fixing, then by fixing you put a cap on what you owe but are now a 75% chance it would be more than if you did the alternative(you can go further and look at the ranges.

There are the other risks associated by long fixes so for some the risk of a life event causing a trigger of ERC goes up.

GDB2222

I guess that I am older than you or have a longer memory. I remember the period around 1990 when mortgage interest rates went up to 15%. Even with multiples of 3 times earnings at that time, there were a lot of very, very unhappy people. With multiples of 6-8 now, rates don't have to rise as much to make people very uncomfortable again.

getmore4less

GDB2222 wrote: »

I guess that I am older than you or have a longer memory. I remember the period around 1990 when mortgage interest rates went up to 15%. Even with multiples of 3 times earnings at that time, there were a lot of very, very unhappy people. With multiples of 6-8 now, rates don't have to rise as much to make people very uncomfortable again.

Been there done that, came about with rampant inflation.

Three pay rises a year came out the other side with a mortgage that had been inflated away quite a bit.

The other point you make there is it will really mess with people and that is another reason rapid rises will get surpressed unless there is inflation/pay rises.