10 year fixed. Opinions please.

ps_live

Hi there,

I posted my previous details here, and got some excellent advice.

My gut feeling is that I'd like some long-term stability and have been reading the thread regarding Nationwide's 10 year fixed deal with great interest.

I currently pay 4.99% on the bulk of my mortgage with C&G, and 4.89% for the next ten years appeals to me greatly. My current deal runs out in March '06, so I'm looking at putting the wheels in motion in Dec/Jan.

What do people actually think about 10 year fixed deal mortgages ? Silent Bob mentioned in the recent post that paying constantly for arrangement fee's works out costly .. I agree completely.

I think 4.89% is pretty low ,and I can't see it going much lower (though I hope it dips just before the New Year )

Opinions sought.

kind regards

Pete

Froggitt

Supposing your mortgage was £100k, by going for a 5 year fix aka Porkman or Yorkshire at about 4.5%, you save about £400 a year......doing the same again in 5 years time would cost you another £500 arrangement, but assuming rates were *similar*, thats a saving of £4000, over the 10 year fix, for an extra cost of £500.

Hobo_2

Hi ps, another option to look at is Cheshire BS 4.99% 15/20/25yr fixes, OK start fees are more but they have redemption windows to escape if required e.g. 1st @ yr 6 on the 25 yr option.

MortgageGenie

Pete you will need to look at this again nearer march 2006. However if your mortgage wasn’t currently tied you would need to look at this very closely.

Although Froggitt is correct with a £100,000 mortgage, it’s not the same situation with £65000 over 18 years. By virtue of the size of your mortgage and term required I’m guessing your property is worth £150,000+? If so, the 10 year option has some merits. (although remember you would be tied for 10 years and subject to an ERP if you tried to get out before the 10 yrs period is up)

Assuming you went with the 5 year Portman option and could get exactly the same product again at the end of the 5 yrs, you would in fact be slightly worst off by the time you get to year 10 than if you had gone with the Nationwide 10 year fixed (I assume that's the one you mean?)

The reason for this, as you’ve mentioned, is the fees. If you look at this on a true interest rate basis and calculate the Internal Rate of Return of each scheme over it’s intial rate period you will see that:

The 1st 5 yrs with Portman works out at 5.151% ish
The 2nd 5 yrs with Portman works out at 5.371% ish
10 years with Nationwide works out at 5.137% ish
(Using a legal fee of £280 for Portman and ignoring chaps & insurance fee)

Not much in it, probably about £100 or so in the 10 year options’ favor. However you could end up better off with the 5 year strategy if you’re able to source one cheaper in 5 yrs time when it comes up for review (the reverse is also true).

Due to your loan size… if you elect to pursue the 5 year strategy there are a couple of schemes which, from a cost point of view, work out better than the Portman’s 4.50%.

MABLE

Well I have thought carefully about this and for me the 10 year fix with NW at 4.89 will suit me. It offers me stability and I am comfortable with the repayments and do not have to worry about rate rises. My mortgage is 60k and with extra payments Im hoping to pay off in next 12 years.

Silent_Bob_3

Thats very similar size mortgage to ours (£55k). How much do you have to overpay buy to pay it off in 12 years?

MortgageGenie

It depends on the term your mortgage is currently structured over. As an example (on the nationwide deal) :

£55K over 18 yrs would be £383.41
£55K over 12 yrs would be £505.66

In this example, an overpayment of £122.25 monthly.

ps_live

MortgageGenie wrote:

Pete you will need to look at this again nearer march 2006. However if your mortgage wasn’t currently tied you would need to look at this very closely.

I'm keeping a close eye on the market from now until I change in March06. My decision will be made by Jan. I'm seriously hoping interest rates will fall by then. I have no problem locking myself into a mortgage that is cheaper than what I'm paying now.

MortgageGenie wrote:

Although Froggitt is correct with a £100,000 mortgage, it’s not the same situation with £65000 over 18 years. By virtue of the size of your mortgage and term required I’m guessing your property is worth £150,000+? If so, the 10 year option has some merits. (although remember you would be tied for 10 years and subject to an ERP if you tried to get out before the 10 yrs period is up)

You are not far off MG, you really know your stuff. I'm fully aware that I will be locked in for the term, but will mortgage rates really dip below, say, 4% in the next ten years? I doubt it (though I'm no expert). I have only my experience from the last 7/8 years to go on.

MortgageGenie wrote:

Assuming you went with the 5 year Portman option and could get exactly the same product again at the end of the 5 yrs, you would in fact be slightly worst off by the time you get to year 10 than if you had gone with the Nationwide 10 year fixed (I assume that's the one you mean?)

Yes, the Nationwide mortgage is the one I'm talking about. Nobody can predict what interest rates will do, but being practical, anything between 4% and 5% is a reasonable gamble in my opinion. Obviously the lower the better. As my mortgage is only 65k, I'm impacted far less with a 0.25% change than say somebody with a 200k mortgage.

MortgageGenie wrote:

The reason for this, as you’ve mentioned, is the fees. If you look at this on a true interest rate basis and calculate the Internal Rate of Return of each scheme over it’s intial rate period you will see that:

The 1st 5 yrs with Portman works out at 5.151% ish
The 2nd 5 yrs with Portman works out at 5.371% ish
10 years with Nationwide works out at 5.137% ish
(Using a legal fee of £280 for Portman and ignoring chaps & insurance fee)

Not much in it, probably about £100 or so in the 10 year options’ favor. However you could end up better off with the 5 year strategy if you’re able to source one cheaper in 5 yrs time when it comes up for review (the reverse is also true).

Thanks for the calculations, thats really great. Once again, I fully appreciate that a 5 year option may be less of a gamble on one hand ... but on the other, what if interest rates are 6.5% after 5 years, I'd be absolutely kicking myself. My ideal rate would be 4.5%. That stability for ten years appeals to me greatly.

MortgageGenie wrote:

Due to your loan size… if you elect to pursue the 5 year strategy there are a couple of schemes which, from a cost point of view, work out better than the Portman’s 4.50%.

So many deals to sift through, I could be here forever

I'm keeping an eye on the situation and a closer eye on the interest rate. I just can't believe I'm organised enough to be planning my next move six months before I have to.

Many thanks MG, for your in-depth and excellent response.

cheers :beer:

Pete

ps_live

Scott wrote:

I see too many people trapped in terrible deals to ever recommend a 10 year fixed rate. I see some SCARY deals (15%, etc) every day, and some very angry customers that they can't get out of them without hefty ERCs.

What kind of ERC is on your product? I'm guessing around 7%?

I appreciate that 15% is indeed a scary deal, but that would simply not happen in the next 6-9 months. I'm looking at a rate of between 4%-5%. That is no more than what I'm currently paying.

ERC is £3250 on Nationwides 10 year fixed (60 months with fee, 120 months with no fee).

cheers :beer:

Pete

ps_live

Hobo wrote:

Hi ps, another option to look at is Cheshire BS 4.99% 15/20/25yr fixes, OK start fees are more but they have redemption windows to escape if required e.g. 1st @ yr 6 on the 25 yr option.

Thanks Hobo, its something I'll definitely look at.

cheers :beer:

Pete

ps_live

MABLE wrote:

Well I have thought carefully about this and for me the 10 year fix with NW at 4.89 will suit me. It offers me stability and I am comfortable with the repayments and do not have to worry about rate rises. My mortgage is 60k and with extra payments Im hoping to pay off in next 12 years.

That sounds like a most excellent plan Mable

Though I don't plan to overpay for the next few years, the option of being able to is extremely appealing.

cheers :beer:

Pete