Fixed or Variable

SieIso

Some great insights so far, thank you.

On the 4.92% fixed for two years, where did you find that?

TheAble

SieIso said:

Some great insights so far, thank you.

On the 4.92% fixed for two years, where did you find that?

It's a variable rate. It will come with a fixed discount to the lender's SVR -  the discount is fixed for two years but the SVR is still liable to variation. 

kerchingbinnacle

TheAble said:

SieIso said:

Some great insights so far, thank you.

On the 4.92% fixed for two years, where did you find that?

It's a variable rate. It will come with a fixed discount to the lender's SVR -  the discount is fixed for two years but the SVR is still liable to variation. 

Yep. West Brom. I’m not sure if they’re still offering it.

fewcloudy

CSI_Yorkshire said:

fewcloudy said:

Fixes are usually can sometimes be a waste of money and turn out in hindsight to be the wrong choice in terms of money saving. On the other hand, they can sometimes save a lot of money if you happen to time it right in a period of rising rates.
.

FTFY.     

There was a very long term study I read 20+ years ago, re. the cost of fixed rates vs variable rates.  I am sure the results showed that statistically speaking, variable rate mortgages cost less that a fixed rate mortgage the vast majority of the time.

*Edited to add link

https://www.canadianmortgagetrends.com/2008/04/fixed-or-variab/

Yes it's from ages ago, and Canadian, so you can make of it what you will.

The link is really an update to the original study 7 years later, and good/bad old Mark Carney even gets a mention!

I'll stand by what I said, that IMO fixes are usually a waste of money.


https://altrua.ca/variable-vs-fixed-mortgage/#:~:text=To summarize, the author of,result in mortgage rate savings.

Variable is Historically and Statistically Shown to Cost Less than Fixed

According to a 2001 report completed by Moshe Milevsky, Professor of Finance at York University Schulich School of Business, variable mortgage rates beat 5 year fixed rates 70% – 90% of the time. 

Using data from 1950 – 2000 the study includes a period of high market volatility, not unlike what we are witnessing in 2022 – 2023, in the 1980s and 1990s when mortgage rates were much higher than they are at present. This means that the data used in this study is not selected during a period that would manipulate the results to favour a variable rate over a fixed rate. 

mattoo

I'm very tempted by Santander's lifetime tracker of 0.54% above BoE rate. My wife is risk averse and insisting we fix for 5yrs at 5.39%. I think we'd regret that fix in 2yrs time but as many say who knows what will happen.

Mark_d

I would consider a 2yr tracker or 2yr fixed.  Which one I go for would depend on the total cost to me over the two year period, assuming no changes in interest rate.

I think the 2yr tracker with Skipton Building Society, at BoE+0.5% looks tempting

BikingBud

fewcloudy said:

CSI_Yorkshire said:

fewcloudy said:

Fixes are usually can sometimes be a waste of money and turn out in hindsight to be the wrong choice in terms of money saving. On the other hand, they can sometimes save a lot of money if you happen to time it right in a period of rising rates.
.

FTFY.     

There was a very long term study I read 20+ years ago, re. the cost of fixed rates vs variable rates.  I am sure the results showed that statistically speaking, variable rate mortgages cost less that a fixed rate mortgage the vast majority of the time.

*Edited to add link

https://www.canadianmortgagetrends.com/2008/04/fixed-or-variab/

Yes it's from ages ago, and Canadian, so you can make of it what you will.

The link is really an update to the original study 7 years later, and good/bad old Mark Carney even gets a mention!

I'll stand by what I said, that IMO fixes are usually a waste of money.


https://altrua.ca/variable-vs-fixed-mortgage/#:~:text=To summarize, the author of,result in mortgage rate savings.

Variable is Historically and Statistically Shown to Cost Less than Fixed

According to a 2001 report completed by Moshe Milevsky, Professor of Finance at York University Schulich School of Business, variable mortgage rates beat 5 year fixed rates 70% – 90% of the time. 

Using data from 1950 – 2000 the study includes a period of high market volatility, not unlike what we are witnessing in 2022 – 2023, in the 1980s and 1990s when mortgage rates were much higher than they are at present. This means that the data used in this study is not selected during a period that would manipulate the results to favour a variable rate over a fixed rate. 

We are saving significant interest by fixing so not sure if that all adds up. Couldn't see what how that applies to the UK or the wholly different model in place now. People used to get a mortgage from "their" building society. The remained with that provider for the term of the mortgage and rode out the IR fluctuations.

More recently people chase the rates often swapping every 2 years to get the "best deal" but do not always consider the longer term or the repetitive cost of the number of fees and charges.

It also seems Canada have a fixed-payment variable-interest rate mortgages: 

Not only have these types of mortgages postponed the payment shock to when these borrowers renew their mortgages, but they’ve actually “magnified the problems down the road,” says Ben Rabidoux of Edge Realty Analytics. 
That’s because any mortgages that have gone into negative amortization, where payments aren’t sufficient to cover the principal portion and the mortgage starts growing, will need to see payments increase even higher to account for that difference, Rabidoux explained.

So not exactly a shining example of doing the best for the consumer.

And not really a fixed v variable discussion more about understand your own product and your obligations.

All I can offer is that you do your own homework and you include sensitivity analysis as part of that due diligence. Could the rates triple or quadruple, what would that mean? Can I cope with that? I feel it is about total amount repayable and whilst there is a discussion required on your money working harder elsewhere this also need to be focused on what happens at end of term, not now (the monthly payment) or after the 2/3/5 yrs fix ends but how much have you paid, total including fees, for the privilege of borrowing money.

Understand where the break points are and what it might cost you to change your mind and your product, we were advised what a rate increase up to 9% would cost, given they are now quoting a follow on rate >8% it does't seem so far fetched. So chose the 5 year fix.

Perhaps the other significant cost drivers that often get glossed over are the price people pay for houses and the mortgage term but these are happily consigned as unavoidable and accepted rather than being challenged. Whereas from a money saving perspective they should both be driven down to ensure best value for money.

BikingBud

CSI_Yorkshire said:

fewcloudy said:

Fixes are usually can sometimes be a waste of money and turn out in hindsight to be the wrong choice in terms of money saving. On the other hand, they can sometimes save a lot of money if you happen to time it right in a period of rising rates.
.

FTFY.     

I agree but when do the clouds lift and the 20/20 hindsight kick in. Quite a long time after the time for exposure to the risk has passed and it did not materialise?

If only we all had that ability!!

fewcloudy

BikingBud said:

CSI_Yorkshire said:

fewcloudy said:

Fixes are usually can sometimes be a waste of money and turn out in hindsight to be the wrong choice in terms of money saving. On the other hand, they can sometimes save a lot of money if you happen to time it right in a period of rising rates.
.

FTFY.     

I agree but when do the clouds lift and the 20/20 hindsight kick in. Quite a long time after the time for exposure to the risk has passed and it did not materialise?

If only we all had that ability!!

Well, we actually all do have the ability of hindsight, right?

In my experience people buy a fixed rate product for stability, not as a money saving device, and I did state that in my first post.

I fixed for my first two mortgages, due to being more financially exposed, 95% LTV, little equity, young family etc. it made sense.  Turned out to be a waste of money as rates did not rise.  Later mortgage was less than 60% LTV and different circumstances, less risky. There were never any clouds to lift, no hindsight required, it very quickly turned out to be the best financial decision I ever made, saving me tens of thousands of pounds.

CSI_Yorkshire

fewcloudy said:

BikingBud said:

CSI_Yorkshire said:

fewcloudy said:

Fixes are usually can sometimes be a waste of money and turn out in hindsight to be the wrong choice in terms of money saving. On the other hand, they can sometimes save a lot of money if you happen to time it right in a period of rising rates.
.

FTFY.     

I agree but when do the clouds lift and the 20/20 hindsight kick in. Quite a long time after the time for exposure to the risk has passed and it did not materialise?

If only we all had that ability!!

Well, we actually all do have the ability of hindsight, right?

In my experience people buy a fixed rate product for stability, not as a money saving device, and I did state that in my first post.

I fixed for my first two mortgages, due to being more financially exposed, 95% LTV, little equity, young family etc. it made sense.  Turned out to be a waste of money as rates did not rise.  Later mortgage was less than 60% LTV and different circumstances, less risky. There were never any clouds to lift, no hindsight required, it very quickly turned out to be the best financial decision I ever made, saving me tens of thousands of pounds.

If I'd stayed on variable when I chose to fix, it would have cost me tens of thousands of pounds.