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    • MSE Naomi
    • By MSE Naomi 3rd Aug 18, 5:39 PM
    • 23Posts
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    MSE Naomi
    MSE News: Considering a 10-year mortgage fix? Here are the pros and cons
    • #1
    • 3rd Aug 18, 5:39 PM
    MSE News: Considering a 10-year mortgage fix? Here are the pros and cons 3rd Aug 18 at 5:39 PM
    Halifax and Lloyds Bank became the latest lenders to launch 10-year fixed-rate mortgages last month, and longer fixes are likely to be increasingly under the spotlight after yesterday's decision to raise the base rate to 0.75%. If you're considering fixing for such a long term, here's what you need to consider...
    Read the full story:
    'Considering a 10-year mortgage fix? Here are the pros and cons'

    Click reply below to discuss. If you haven!!!8217;t already, join the forum to reply.
Page 1
    • csgohan4
    • By csgohan4 3rd Aug 18, 5:48 PM
    • 4,748 Posts
    • 2,987 Thanks
    csgohan4
    • #2
    • 3rd Aug 18, 5:48 PM
    • #2
    • 3rd Aug 18, 5:48 PM
    Crystal Ball time
    "It is prudent when shopping for something important, not to limit yourself to Pound land/Estate Agents"
    • getmore4less
    • By getmore4less 3rd Aug 18, 6:09 PM
    • 32,647 Posts
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    getmore4less
    • #3
    • 3rd Aug 18, 6:09 PM
    • #3
    • 3rd Aug 18, 6:09 PM
    Given they messed up the fee no fee big time how can you trust anything MSE say?
    • Stuart_W
    • By Stuart_W 3rd Aug 18, 7:37 PM
    • 1,396 Posts
    • 672 Thanks
    Stuart_W
    • #4
    • 3rd Aug 18, 7:37 PM
    • #4
    • 3rd Aug 18, 7:37 PM
    My wife and I took out a 10 year fix with the Co-op back in early 2006.

    It did the job we wanted it to - fixed our payments, with certainty about what our monthly repayment would be. We were protected from rate rises in the first few years - but then obviously rates crashed.

    We could look back and say we'd have been on a lower rate for 7 of those 10 years of we hadn't fixed, but we wanted certainty, and we got it. We massively overpaid each month from day 1 which made a huge difference - we actually paid our whole mortgage off within the 10 year fix.

    We could have been several thousand pounds better off if we hadn't fixed, but that isn't the point. We got the certainty we wanted. We protected ourselves from an unpredictable interest rate, and still both ended up with a house we had fully paid for before we each reached 40.

    No one has a crystal ball. We wanted to reduce the risk of unpredictable increases to our outgoings. That's what a long fix can do.

    A ten year fix may end up being a bargain that saves thousands, or something that ends up costing well over the odds - but that's only in comparison with what others pay. A fix is about removing that uncertainty. It's not about money saving. It might or might not end up being money saving.
    • sheepy21
    • By sheepy21 3rd Aug 18, 9:25 PM
    • 147 Posts
    • 136 Thanks
    sheepy21
    • #5
    • 3rd Aug 18, 9:25 PM
    • #5
    • 3rd Aug 18, 9:25 PM
    We've just gone for a 10yr fix,as we figured interest rates can only now go up, we felt this was th safest option for our circumstances (I'm unable to work due to caring for our son). But we're planning on overpaying, so should own half our house by the time the fix is up
    • getmore4less
    • By getmore4less 4th Aug 18, 7:55 AM
    • 32,647 Posts
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    getmore4less
    • #6
    • 4th Aug 18, 7:55 AM
    • #6
    • 4th Aug 18, 7:55 AM
    look at a couple of statements

    Avoid extra mortgage fees. Regularly switching deals means fees can add up - if you take out five consecutive two-year deals over a 10-year period, you'll be paying any arrangement fees five times over, potentially setting you back 8,500 if you pay the 1,700 fee charged for the current lowest-rate two-year fix (up to 60% LTV). Meanwhile, the current lowest-rate 10-year fix (up to 60% LTV) has set-up fees of 1,034, which of course you'd only pay once over the 10 years - an instant 7,466 saving on fees. However, an increasing number of mortgages have no fees at all - see our Four in 10 mortgages are now fee-free news story for full info.
    You would need a big mortgage to be paying the fees 5 times on a series of 2 year deals.
    For that 1,700 the break even over 2 years for that deal(1.43%) over the no fee(1.89%) with full term 25y was around 193,000.
    (rates were in the previous article before the rate rise)

    if that had been the 5th fix (17years left)you would have needed a mortgage of 197,000 that would have started out 8 years earlier at over 270,000


    If you had mortgage debt of 120,000 on a 200,000 property, and took out the top two-year fix on the market (1.49% from Chelsea Building Society, with set-up fees of 1,900),
    On a 120k mortgage over 25y any no fee two year fix below 2.32% will save money over paying 1,900 in fees on 1.49%

    Initial costs of 2-year vs 10-year fixes:

    If you had mortgage debt of 120,000 on a 200,000 property, and took out the top two-year fix on the market (1.49% from Chelsea Building Society, with set-up fees of 1,900), your monthly repayment would be 487, amounting to a total cost of 11,687 over the two years of the fix. Meanwhile if you opted for the top 10-year fix on the market for the same mortgage debt, your monthly repayments would 542, while your total payments over the first two years of the fix would be 13,018. However, while two-year fixes are cheaper initially, if you continued to take out two-year fixes over 10 years the further set-up fees and potential rises in interest rates could offset this early saving.
    once again totally ignoring the remaining debt just looking at the payment to get the saving of 1,331 over the first 2 years

    I think we have these 2 deals 25y term with the fees added
    120k 1.49% 1,900 486.95pm 2 year fix
    120k 2.49% 1,034 542.37pm 10y fix.

    if we make the payment the same(542.37) then after 2 years you are left with

    112,380.53
    113,875.28

    The actual saving would be 1,495(10% more) but then on 120k you would be looking at no/low fee for a 2y fix they are usually better.

    using the best buy link a better 2 year deals would be TSB 1.55% with 495 fee

    120k 1.49% 1,900 486.95pm 2 year fix
    120k 1.55% 0,495 484.74pm 2 year fix
    120k 2.49% 1,034 542.37pm 10y fix.

    after 2 years

    112,380.53
    111,074.29
    113,875.28

    Now the 2y is 2,800 ahead at the 2 year point.

    To put that into context with another 2 year deal
    to still be ahead at year 4 against the 10y year fix any 2y no fee rate below 3.81% will work.

    if the 2y/no fee rates went up to 2.49% for the second one at Y4 you would owe 103,407 against the 10y fix where you would owe 106,351

    Still nearly 3k ahead at Y4 and a 3rd 2y fix rate could be as high 3.99% to still be ahead at Y6
    • amnblog
    • By amnblog 4th Aug 18, 9:37 AM
    • 10,678 Posts
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    amnblog
    • #7
    • 4th Aug 18, 9:37 AM
    • #7
    • 4th Aug 18, 9:37 AM
    Moving or relationships splitting up are the most common reasons for longer terms fixed rates coming back to bite you.

    Best for steady people with steady jobs and fixed budgets.
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • NewShadow
    • By NewShadow 4th Aug 18, 5:57 PM
    • 3,060 Posts
    • 13,406 Thanks
    NewShadow
    • #8
    • 4th Aug 18, 5:57 PM
    • #8
    • 4th Aug 18, 5:57 PM
    A ten year fix may end up being a bargain that saves thousands, or something that ends up costing well over the odds - but that's only in comparison with what others pay. A fix is about removing that uncertainty. It's not about money saving. It might or might not end up being money saving.
    Originally posted by Stuart_W
    This is exactly what I came on this thread to post.

    I'm going to be buying my first - and hopefully only - house in the next couple of years and I've been trying to learn as much about the process as possible.

    I'm reasonably confident I'll be going for the longest fix available to me - not because I think it's cheapest, but because I greatly value knowing exactly what my regular outgoings will be and that I can afford my home.
    That sounds like a classic case of premature extrapolation.

    House deposit: 26% = 25,000 + 800pm * 10 months = 33,000

    Goal: Keep the bigger picture in mind...
    • VT82
    • By VT82 6th Aug 18, 9:31 AM
    • 974 Posts
    • 803 Thanks
    VT82
    • #9
    • 6th Aug 18, 9:31 AM
    • #9
    • 6th Aug 18, 9:31 AM
    My wife and I took out a 10 year fix with the Co-op back in early 2006.

    It did the job we wanted it to - fixed our payments, with certainty about what our monthly repayment would be. We were protected from rate rises in the first few years - but then obviously rates crashed.

    We could look back and say we'd have been on a lower rate for 7 of those 10 years of we hadn't fixed, but we wanted certainty, and we got it. We massively overpaid each month from day 1 which made a huge difference - we actually paid our whole mortgage off within the 10 year fix.

    We could have been several thousand pounds better off if we hadn't fixed, but that isn't the point.
    Originally posted by Stuart_W
    Did you actually do the maths at the time and check if you'd have been better off remortgaging onto a hugely cheaper 5yr deal when you were five years in? Your payments would still have been fixed for the next five years, giving you the exact level of rate certainty you had at the time, but you'd probably have saved a shedload of money switching from >6% to <4%, even after paying the (by then reduced) ERC. It's one thing to be 'que sera, sera' about taking out a 10 year fix, but quite another to be deliberately out of pocket due to defeatism.
    • fewcloudy
    • By fewcloudy 6th Aug 18, 10:15 AM
    • 239 Posts
    • 122 Thanks
    fewcloudy
    My wife and I took out a 10 year fix with the Co-op back in early 2006.

    It did the job we wanted it to - fixed our payments, with certainty about what our monthly repayment would be. We were protected from rate rises in the first few years - but then obviously rates crashed.

    We could look back and say we'd have been on a lower rate for 7 of those 10 years of we hadn't fixed, but we wanted certainty, and we got it. We massively overpaid each month from day 1 which made a huge difference - we actually paid our whole mortgage off within the 10 year fix.

    We could have been several thousand pounds better off if we hadn't fixed, but that isn't the point. We got the certainty we wanted. We protected ourselves from an unpredictable interest rate, and still both ended up with a house we had fully paid for before we each reached 40.

    No one has a crystal ball. We wanted to reduce the risk of unpredictable increases to our outgoings. That's what a long fix can do.

    A ten year fix may end up being a bargain that saves thousands, or something that ends up costing well over the odds - but that's only in comparison with what others pay. A fix is about removing that uncertainty. It's not about money saving. It might or might not end up being money saving.
    Originally posted by Stuart_W

    If you had the finances in place to "massively overpay each month from day 1" then I'm sorry, but that was just a really bad financial decision.
    That you paid off your mortgage during the 10 years is nice, but irrelevant; you'd have paid it off years earlier if you hadn't bought a 10 year fix.
    Feb 2008, 20year lifetime tracker with Sprogget and Sylvester, 0.14% + base for 2 years, then 0.99% + base...
    • getmore4less
    • By getmore4less 6th Aug 18, 6:55 PM
    • 32,647 Posts
    • 19,640 Thanks
    getmore4less
    This is exactly what I came on this thread to post.

    I'm going to be buying my first - and hopefully only - house in the next couple of years and I've been trying to learn as much about the process as possible.

    I'm reasonably confident I'll be going for the longest fix available to me - not because I think it's cheapest, but because I greatly value knowing exactly what my regular outgoings will be and that I can afford my home.
    Originally posted by NewShadow
    You really need to crunch the numbers.

    Why commit to higher outgoings now to make sure they stay the same for a long time?

    The power of overpayments(or building up a payment reserve) by allocating the same as you would if you committed to pay more can give a very good margin on rate rises and payments.

    The question you need to be asking is how much will rates need to go up to be worse off.

    As you can see from my numbers 2 year rates have to go up from 1.5%-2% to around 3.5%-4% to be worse off in the first 1/2 of a 10y fix at 2.5% now on that 120k mortgage.
    (the numbers will be similar for other sizes)

    It can still be the right decision to go 10y but if rates going up are a motivator then workout where the break evens rises in rates are so you go in informed better than the standard guess "they will go up" I need to fix.
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