How much interest do you pay?

Not seen any threads about mortgages, but lots of people must have one.

I am buying a house soon and thinking about a 5 year fixed mortgage at 1.99%

but then onto their svr(5.44%), which is much higher.

I was looking at a 10 year fixed, but anything can happen in ten years. Anyone that does not change will be stung, and you will get stung if you pay off early.

Rates are likely to be higher in a couple of years, a good time to fix, get a low rate while you can.

http://www.leedsbuildingsociety.co.uk/mortgages/fixed-rate-mortgages/#tab:2

Not seen any threads about mortgages, but lots of people must have one.

 

I am buying a house soon and thinking about a 5 year fixed mortgage at 1.99%

 

but then onto their svr(5.44%), which is much higher.

 

I was looking at a 10 year fixed, but anything can happen in ten years. Anyone that does not change will be stung, and you will get stung if you pay off early.

Rates are likely to be higher in a couple of years, a good time to fix, get a low rate while you can.

 

http://www.leedsbuildingsociety.co.uk/mortgages/fixed-rate-mortgages/#tab:2

It's a toughie. I went for a guaranteed lower rate for the first few years because it's a bigger proportion of my income for those first few years.

You can usually expect your income to rise over those years in cash terms whilst the repayments stay fixed in cash terms. So even if interest rates do rise, the repayments will hopefully still be affordable.

Calculate what you'd actually end up paying per month if the rate jumps from say 5% to 10%. It probably isn't as much extra as you think.

If you can afford the variable you'll probably save over the long term because the banks set the fixed well above where they estimate the average will be.

When rates are low, you can overpay and then use that overpayment as a reserve against periods of high rates. If no such periods occur the overpayments will instead reduce the total cost of the mortgage.

Fixed rate is essentially insurance against interest rate variations. Insurance is set up to make a profit.

I have a complex arrangement where I pay my own company interest on a loan at 3% APR, the profit from the interest is retained by my company, but I have to pay corporation tax on it at 20%.

Previous to that I had a rate of 1.99% with HSBC I think.

I've never gone for anything longer than 5 year fixed, and more recently 2 or 3 year fixed.

That said, interest rates are currently at the lowest ever level and must rise at some point. So a 10 year fixed will be a bit higher than a 2 or 3 or even 5 year fixed, but it could end up protecting you from an interest rate rise in 5 years time... You have to decide that for yourself.

Using a simple loan example, at month 60, ie halfway though on a £100k loan. You will still have just over half the capital to pay off.

60 £ 53,327.10 outstanding

£ 831.26 Capital repayment

£ 88.88 Interest payment

£ 920.13 Total payment.

So the Sticker shock to the loan is only going to affect that £88 - so if interest rates do go up three times, your monthly repayments will go from 920 to 1080.

Use the loan calculator here to get an idea of how it works. http://www.thecalculatorsite.com/finance/calculators/loancalculator.php

5 year fixed at under 2% is really good, usually it's a touch under 2.5% on a 5-year fixed mortgage.

Sub 2% was more the realm of 2-year fixed mortgage.

I pay 2.69% on a 5 yr fix with 3 1/2 years to run and 1.54% on a 2 year tracker

5 year fixed at under 2% is really good, usually it's a touch under 2.5% on a 5-year fixed mortgage.

 

Sub 2% was more the realm of 2-year fixed mortgage.

I am hoping they havnt fiddled the figures, and it will still be on offer when I am ready to sign on the dotted line.

Using a simple loan example, at month 60, ie halfway though on a £100k loan. You will still have just over half the capital to pay off.

 

60 £ 53,327.10 outstanding

£ 831.26 Capital repayment

£ 88.88 Interest payment

£ 920.13 Total payment.

 

So the Sticker shock to the loan is only going to affect that £88 - so if interest rates do go up three times, your monthly repayments will go from 920 to 1080.

 

Use the loan calculator here to get an idea of how it works. http://www.thecalculatorsite.com/finance/calculators/loancalculator.php

Using a 25 year example instead. 100k loan, 2% rate currently.

Loan payments:£127,156.30

Balloon payment at end:£0.00

Total payable:£127,156.30

300 monthly payments of:£423.85

Total interest:£27,156.30

Halfway through (so year 12.5, month 150)

Paid £63577.5, outstanding £56,542.15

If the interest rate doubles (which is historically speaking still a low rate).

Then the monthly payment increases to £479.62 a 13% increase on the monthly bill.

If the rate went up earlier (or higher) then this number gets larger pretty quickly!

It is not only about the % rate. Don't forget to factor in any up front costs, arrangement fees and the like can make it less of a good deal.

And any exit fees, these can apply after the fix period.

Using a 25 year example instead. 100k loan, 2% rate currently.

 

Loan payments:£127,156.30

Balloon payment at end:£0.00

Total payable:£127,156.30

300 monthly payments of:£423.85

Total interest:£27,156.30

 

Halfway through (so year 12.5, month 150)

Paid £63577.5, outstanding £56,542.15

If the interest rate doubles (which is historically speaking still a low rate).

Then the monthly payment increases to £479.62 a 13% increase on the monthly bill.

If the rate went up earlier (or higher) then this number gets larger pretty quickly!

I don't know why but for some reason I had it in mind he was after a ten year duration mortgage....

The best bet is to overpay as much as you can in the first few years to get the capital down quickly. If rates do rise then the overpayment can be used to service the interest later on. If you can take a 25 year mortgage on a 5 year fixed rate, and overpay by 20% every time, that will cushion against a very large interest rate rise even as early as year five.

I am hoping they havnt fiddled the figures, and it will still be on offer when I am ready to sign on the dotted line.

1.99% 5 year fixed are available but you need to take into consideration the fee the lender will charge to set that loan up for you, more often than not on lower loan amounts the amount you save from the lower rate is not worth the arrangement fee you have to pay. All depends on how much you are borrowing really.

The bigger deposit you have the better deal you will get (subject to credit score and affordability).

In the above the product fee is £999 where as they have a deal at 2.19% with only a £199 fee smaller loans would be better paying the smaller fee and higher rate of interest.

The way that mortgages are set up is that for any given lump of money that the mortgage company puts into any scheme they expect the same return over the lifetime of the mortgage. This may be at the beginning, via set up fees, during the lifetime of the mortgage via interest rate or at the end via repayment fees.

You, the mortgagee, has to decide whether to take advantage of cheap start up costs, consistent repayment costs or being able to pay off the mortgage at any time without penalty.

There is a reason for lenders calling their products dead pledges because they will have the money off you one way or another.