Fixed or Variable

fewcloudy

CSI_Yorkshire said:

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.
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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.

Losing or saving a fortune when fixing are at the extreme ends of the scale.

The vast majority of time they lose the owner money that they are prepared to lose for 'peace of mind'.

So fixing/not fixing around 2008 and 2022, prior to unexpected and large movements in the interest rate will mean big winners/losers.

But for the vast majority of the time before, inbetween, and after these unexpected large changes in interest rates, the owners of fixed rate products will lose money by sitting on a fixed rate higher than the variable rate for 2,3,5,10 years whatever.

CSI_Yorkshire

fewcloudy said:

CSI_Yorkshire said:

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.

Losing or saving a fortune when fixing are at the extreme ends of the scale.

The vast majority of time they lose the owner money that they are prepared to lose for 'peace of mind'.

So fixing/not fixing around 2008 and 2022, prior to unexpected and large movements in the interest rate will mean big winners/losers.

But for the vast majority of the time before, inbetween, and after these unexpected large changes in interest rates, the owners of fixed rate products will lose money by sitting on a fixed rate higher than the variable rate for 2,3,5,10 years whatever.

Or that is a potential premium paid against risk.  Insurance against market movements outside their control.

A pretty sensible thing for most to do.

Insurance would often be considered money-saving.

Andreg

Before signing up for a tracker consider: could you still afford the repayments if interest rates went to 10%?  Rates have been this high in the past.

fewcloudy

Andreg said:

Before signing up for a tracker consider: could you still afford the repayments if interest rates went to 10%?  Rates have been this high in the past.

Why stop at 10, they've been 17% in my lifetime...
Nobody would ever take a tracker based on your considerations.
I don't believe trackers/variable rates/discunted rates etc are some niche product only suitable for those who are comfortable with repayments dbl what they started with.

CSI_Yorkshire

fewcloudy said:

Andreg said:

Before signing up for a tracker consider: could you still afford the repayments if interest rates went to 10%?  Rates have been this high in the past.

Why stop at 10, they've been 17% in my lifetime...
Nobody would ever take a tracker based on your considerations.
I don't believe trackers/variable rates/discounted rates etc are some niche product only suitable for those who are comfortable with repayments dbl what they started with.

I agree.  They're not a niche product.  Understand and accept the risk and its implications, just as you do for a fixed rate, and they are no different from any other.

Andreg

Understand and accept the risk and its implications, just as you do for a fixed rate, and they are no different from any other.

Yes understand the risk and its implications.  Worst case scenario with a fixed rate is you might be kicking yourself that you are paying more than other people.  Worst case scenario with a tracker is you could lose your home.  

CSI_Yorkshire

Andreg said:

Understand and accept the risk and its implications, just as you do for a fixed rate, and they are no different from any other.

Yes understand the risk and its implications.  Worst case scenario with a fixed rate is you might be kicking yourself that you are paying more than other people.  Worst case scenario with a tracker is you could lose your home.  

You, as many others do, are understanding half of the components of the risk.

Understanding risk is not a case of "what happens in the worst case scenario".

Understanding risk involves looking at both the outcome and the chance of each scenario.

If you ignore the second component, you have not understood the risk.

Andreg

CSI_Yorkshire said:

Understanding risk involves looking at both the outcome and the chance of each scenario.

Indeed, and this scenario, of being unable to afford the payments, had not been mentioned previously in the thread. I leave it to the OP to decide just how bad losing one's home is and therefore how much weight that should carry in their analysis.

CSI_Yorkshire

Andreg said:

CSI_Yorkshire said:

Understanding risk involves looking at both the outcome and the chance of each scenario.

Indeed, and this scenario, of being unable to afford the payments, had not been mentioned previously in the thread. I leave it to the OP to decide just how bad losing one's home is and therefore how much weight that should carry in their analysis.

Interesting that you choose to suggest, again, that the OP should decide how bad that situation is without considering how likely it is.

How bad would it be if the next time you stepped outside you were struck on the head by falling space debris?

Andreg

CSI_Yorkshire said:

Andreg said:

CSI_Yorkshire said:

Understanding risk involves looking at both the outcome and the chance of each scenario.

Indeed, and this scenario, of being unable to afford the payments, had not been mentioned previously in the thread. I leave it to the OP to decide just how bad losing one's home is and therefore how much weight that should carry in their analysis.

Interesting that you choose to suggest, again, that the OP should decide how bad that situation is without considering how likely it is.

How bad would it be if the next time you stepped outside you were struck on the head by falling space debris?

Interesting that you choose to suggest that interest rates at 10% is as likely as being struck on the head by falling space debris.  That appears to be where we differ.