Do fixed rate mortgages exist for long periods like 20+ years

Thrugelmir

Interesting how 20 year mortgages aren't being promoted in that US advert. Down to an inconvenient truth unfortunately. Anyone can pick certain historic time frames to back up their argument. 

John_

fewcloudy said:

CreditCardChris said:

An American youtuber I watched called Graham Stephan has several mortgages and he gets mortgages at 3.5% - 5% fixed for 30 years. But I've gone onto some market comparison sites and individual mortgage websites and I can't find anything even remotely close to 30 years fixed. Most of the ones I'm seeing are fixed for 2 years or 5 years, so do long term fixed interest mortgages exist in the UK or is this an mostly an American thing?

His logic is simple, get a fixed rate mortgage now while the interest rates is very low. 

I would guess the ERC's if such a thing existed would be pretty brutal. And the BOE base rate might be low but the longer you fix for, the higher the rate on your product would be. And what if you wanted to move; quite likely in 30 years I'd guess?

In the US the early redemption charges tend to be small, but this means that the fixed rates tend to be high. It leads to some complex risks for the banks which are quite hard to hedge.

amnblog

CCC, I’m afraid Mr YouTube is talking total nonsense.
Point 1. Gross FTSE return over the past 10 years is close to 40%. Not the 100% suggested here. (7% gross per annum = Investment doubling every 10 years)

Point 2. By the end of year 30 you will have paid £180,000 extra interest which is not figured in these basic calculations.

Point 3. What about the tax load on the investment? Ignored here.

PixelPound

It's probably not unexpected that when base rate falls to 0.1% people are asking about 30 year fixes

csgohan4

If you believe Mr Youtube and facebook ads over financial advisers, you deserve everything you get

zagubov

Full-term fixes did exist once but were never popular. My parents had one when they bought back in the 60s, a 25 year fix at I think 5%. They every much valued the stability and certainty of their outgoings but they were well awre that variable rate and shorter-term fixes were much more common.

CreditCardChris

amnblog said:

CCC, I’m afraid Mr YouTube is talking total nonsense.
Point 1. Gross FTSE return over the past 10 years is close to 40%. Not the 100% suggested here. (7% gross per annum = Investment doubling every 10 years)

Point 2. By the end of year 30 you will have paid £180,000 extra interest which is not figured in these basic calculations.

Point 3. What about the tax load on the investment? Ignored here.

Mr Youtube has build a net worth of several millions by investing in real estate so he's not a moron, he's actually been there and done it. 
Secondly why are you basing your calculations on the FTSE when he is clearly American and talking about the S&P?
You obviously didn't watch the video or understand the graphic I posted so I'll explain his logic. 

Scenario 1:
£300,000 house on a 15 year mortgage at 4.3% interest rate.
You pay £2,264 a month.
After 15 years your mortgage is paid off so you start investing £2,264 in the S&P for the next 15 years at an assumed 9.8% return (historical average).
After 30 years you own the house and have ~£921,858 invested in the stock market.

Scenario 2:
£300,000 house on a 30 year mortgage at 5% interest rate.
You pay £1610 a month.
You invest the difference of £1132 in the S&P every month for 30 years at an assumed 9.8% return (historical average).
After 30 years you own the house and have ~£3,402,255 invested in the stock market.

Ergo your have more money at the end of the 30 year mortgage than you do with the 15 year mortgage. Seems pretty self explanatory to me?

csgohan4

and investing in stock market, what they don't say is the loses which is evident now, people lost alot recently. It's all right forecasting, but it really is a crystal ball. Again why would you trust Mr Youtube than your own financial adviser?

Look at the One coin and people peddling it over Youtube, look what happened to them 

https://www.bbc.co.uk/news/stories-50435014

MPD

£2,264 - £1610 is not £1132

You may want to run the figures on the investment return again.

SouthLondonUser

Just because a strategy worked for some people, it doesn't follow that it would work for everyone. Ever heard of survivorship bias? https://xkcd.com/1827/

You don't need a PhD from Harvard to understand that, if you have a debt that costs you x% in interest, and you can invest elsewhere at y% > x%, then it is beneficial to put money in the strategy that yields y%, rather than repaying the debt.

But how certain is this higher return? What if it turns out to be lower? What is the risk of that? If you have  an absolutely certain return greater than the cost of your debt, by all means, go for it; e.g. if you have a mortgage charging 1% interest and a saving account paying 1.5% (after taxes). But if the strategy is to invest in the stock market, well, you have to be aware of the risks; I am not going to watch the video, but the messages posted here made no mention whatsoever of risk, they basically implied that a higher return was a given - well, it's not. Over a long-enough horizon, and provided the world doesn't get hit by the worst pandemic of the last 100 years, yes, there is a certain likelihood that investing in the stock market will yield more than the cost of the mortgage; over shorter terms, not necessarily. Now with Covid, who knows, all bets are off as these are uncharted waters.

Finally, I would add that there is merit in minimising the cash outflow every month, even if you don't want to invest spare cash elsewhere, simply because this gives you a safety buffer that you can use as a rainy day fund. E.g. let's say you could afford instalments of £1,000 per month, however you set a longer term for the mortgage and bring the total instalments to £ 700. Then, every 12 months or so, you check how much you have saved and decide whether to make an overpayment. This may cost you a little bit more in interest but will give you lots of piece of mind, which is important especially if your income is irregular.