Special Briefing: Fixed v Discount

MarkyMarkD

Hi
A question from an unlearned user.
If I take a fixed rate mortgage at say, 5% and the bank rate dropped to 2%, (unlikely i know!) would it mean that i was paying any extra off my capital or would the extra i was paying be purely interest going in to the coffers of the lender?
Also, if it was th eother way round and the bank rate went to 10%, when i had finished my fixed rate period, would the lender recoup the interest that i hadnt been paying or would it be their loss?

TIA

Andy

No, no, no and no, in that order.

If you buy a fixed rate mortgage, the lender enters into an agreement with other financial institutions, via the money markets, agreeing to pay fixed rate interest to the other party at around the same rate as they charge you.

Then you pay them a fixed rate for the fixed term, irrespective of what happens to interest rates, and they pay that on to the other financial institution.

They don't "keep the difference" if rates fall, and they don't "lose the difference" if rates rise.

At the end of your fixed rate term, your mortgage will go onto whatever follow-on rate was defined at the start - normally the lender's Standard Variable Rate. And at this stage there is nothing to be recouped - you've paid what you are due to pay, and they've received what they are due to receive.

Goldiethedog_2

I need to remortgage £55000 next month as we fall off our 2 year fix. If ii go onto variable we will pay approx £460pm. Currently pay £377pm.
We have found a 2 year fix at 4.95% (6.0%APR 23 years) which works out at £400.99.

I've not considered a tracker before but would a tracker be cheaper at present? My head for some reason says interest rates won't rise again in the next 2 years as the recent rises have had the desired effect on the economy and house prices. Mmmmmmm?

Any comments?

BOB09

Just a quick question to who ever can help..

I am looking to get a mortgae of £85000..

I will be leaving £20000 in my bank for a rainy day..

What is the best deal for me...I recentley paid my mortgage off which was
an offset mortgage.

Hope someone can help as I am getting more and more confused..

Joe_Bloggs

Why do you need another mortgage. Is this a remortge a for a lower interest rate from an offset deal ? You say you need £85000 and have £20000 to invest in savings .
I don't understand how you have paid off your mortgage. I am confused.
J_B.

shooper2

MSE_Martin wrote:

The following discussion related to this article

Special Briefing: Fixed V Discount

To ask a question or discuss this click reply

Hi,

My 5 year fixed rate mortgage is due for renewall in January. We are currently with Cheltenham and Gloucester. Would it be worth shopping around or keeping with them? Approx 8 yrs to go with approx £60k outstanding.... :xmastree:

Cheers, Trish

payless

Shop around & then compare with C&G

C&G do offer a range of "renewal " products ( not as good as new buyer rates)

better rates for £100K+ loans ( albeit higher fees- same of their £100K buyer rates ) , although maybe not that much help here!

stanmoresaver

allante wrote:

Hi
A question from an unlearned user.
If I take a fixed rate mortgage at say, 5% and the bank rate dropped to 2%, (unlikely i know!) would it mean that i was paying any extra off my capital or would the extra i was paying be purely interest going in to the coffers of the lender?
Also, if it was th eother way round and the bank rate went to 10%, when i had finished my fixed rate period, would the lender recoup the interest that i hadnt been paying or would it be their loss?

TIA

Andy

5% would be the interest rate you paid. No extra capital would be repaid. Nothing extra to be paid or repaid at the end

Funnily enough, it wouldn't be going into the "coffers" of the lender, because most commercial lenders (PLC'S) effectively borrow most of the money they lend anyway.

scooterdude

Can anyone ket me know who is giving 4.67% fxd deal over 10 yrs due for remortgaging soon?

herbiesjp

The Woolwich

arothwell

I came across an idea in The Week a few weeks ago then lost the copy before I could memorise the details. Basically the idea was this:

If you have paid off the mortgage on your house, get a fixed rate mortgage and quickly pay it all off except for, say, £1. If in future, interest rates rise above the fixed rate you are being charged you have the ability to borrow at the low interest and place the money in a higher interest account.

I cannot remember the name of the bank/building society with whom this would be possible

Hope that makes sense. It sounded like an interesting and fun gamble with only a £1 downside and a sky's the limit upside.

Any observations, more information, etc?

KK