I can’t get rid of it. I am underwater relative to the purchase price - it was off plan
I can finance it. I could purchase outright but that would potentially cause other issues down the line.
I can finance now over 2-5 years. Rent covers mortgage and I simply need to forget I own it for at least 5 years.
So, do we think rates are going up.
We are a decade on from sub prime. More mortgages are now being approved than back then. Rates are at all time low and have been forever.
Many buyers have never experienced the consequences of higher rates.
I am wary that should I choose a 2 year fix as opposed to 5 year that in the interim we are overdue some sort of financial Armageddon that would do me no favours.
So would you take a 5 year at 6% or a 2 year at 5%?
I am committed to purchasing a property that I can’t sell for the price I agreed to purchase it at 4 years ago.
So I am stuck.
Though weirdly the rental income has not decreased in the same proportion as the value of the property e.g. it rents as if it’s worth 100. But will only sell for 80.
I think that’s unlikely, but I’d take a higher fixed rate (as I am not paying it) if I can avoid an even higher rate if I have to refinance due to rates going up
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I’m betting interest rates go up. Quantitative easing…largest budget deficits ever due to the tax cuts (US)…current geopolitical situation which doesn’t bode well for financial stability…yeah I think we are ripe. Timing is the hard part…but with a five year horizon, I’d bet on it. The bigger question I have is how are others thinking about hedging against US currency devaluation? How are you spreading your risk?
So would you take a 5 year at 6% or a 2 year at 5%?
One way of looking at it is that the rates available to you are a fairly direct result of calculus by the market (ie all the smart guys) of current rates, derivatives, expectations etc. Thus, neither is a “better” proposition, it will merely be the case that one might better fit your own attitude to risk or your expectations about your future circumstances.
From what you have described, it seems you would prefer a 5 year set and forget, vs refinancing at a (probably) higher rate in 2 years. The NPV of both is probably the same, but the 5 year loan might help you sleep better.
You’re asking the wrong question - everyone always does. The fixed rate is set so that it takes into consideration that the rates may go up, plus a premium (or insurance if you want to think of it that way) to ensure that the bank still makes money in the event that the rates go up. Think of it this way: for the fixed, you’re paying the bank to ensure surety.
So for a fixed rate, you’re paying for:
-the chance that the rates will go up or down
-plus the premium to ensure rate surety.
Now, if you think that you know better than the bank or the market that the rates will rise quicker than they think - by all means take the fixed. But these are people who do this for a living. History has shown that the buyer of a variable rate mortgage is generally better off about 75% of the time but you expose yourself to interest rate risk.
The real question is: can I afford it if the rates go up? If yes, take the variable. If no, take the fixed.
Agree with a lot of what you say, with the proviso that I don’t think anybody has much ability to predict interest rates more than a few years out, and I always think it’s worth looking at the delta between fixed and variable and also 2 year versus 5 year fix. If there’s a pretty small variable then I’m more tempted to take the fix and eliminate the risk.
Went with variable discount rates for the first 15 years or so of being a property owner and always worked out better than fixing. Took my first fix 2 years ago because I got a 5 year fix at 2% when 2 year discount deals were about 1.7% and 2 year fix was about 1.9%. I’m no expert on interest rates but 0.3% to get an extra 3 years with no risk is nuts. There’s virtually no downside for me as interest rates can’t get much lower, and potentially plenty of upside if there are political or other shocks in the next 5 years.
I do think that such a long period of low interest rates might just be leading the analysts to get complacent. There are guys with 10 years of experience who have never known interest rates to rise significantly.
To Andrewmc, 1% extra to go from 2 years to 5 doesn’t seem bad to me given how unpredictable things get that far out.
I am not trying to “beat” them. I am trying to minimize the risk of having to refinance should rates go up in this particular period
That’s all
If I take a 2 year at 4.5. The risk is that the next 2 year becomes slightly higher than i can borrow for 5 today.
On top of which i would have a fee for again refinancing
So whilst I have zero doubt that they have taken a position on what rates for next 5 years look like. I don’t want to be in a position in 2 years where fees plus new interest rate plus perhaps changes in lending criteria mean I either can’t get a better rate OR I’d have to pay the mortgage off. Neither of which is attractive at the moment
If you think you will hang onto it for 5 years take the 5 year fixed. If interest rates go down they will not go down much. So little downside. If rates go up significantly it will cost you extra if you take the 2 year.
Interest rate should rise in the next three years. And if you have no intention to sell for the next 3 - 4 years, taking a 3 years fixed at 4.5 - 5% does seems like a better choice
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By the way, what country are we talking about here? 4.5-6% sounds high, even for a buy to let mortgage in the UK. We’re paying 2% on our UK property on a 5 year fix (we lived there when we took the mortgage but are renting it out currently with the bank being fully aware). And a friend just bought a holiday place in France and has apparently fixed at 1.5% for the entire 20 year duration of the mortgage (which sounds too good to be true, I’m looking into it!). Is there a middle ground where you put in a bit more deposit and get access to a better rate?
Or is it because you’re buying a property in the UK while living overseas and so have very limited mortgage options? In which case can you take out more mortgage in France at a better rate, allowing you to take out a smaller or no mortgage on the new property?
UK. But a specific type of loan due to circumstances.
That French rate actually sounds a little high compared to my friends
We are selling everything in France. It’s no place to keep equity even if mortgage rates are low.
I could pay cash but i would like to keep the money aside as we are relocating to somewhere a little more tax friendly.
The rate does not bother me in the sense a tenant is paying it and I don’t need the income.
It’s in UK. I am mortgage free in France but can’t get an equity out as they do not like remortgages.
I am contracting again. I will almost certainly be able to get a new btl mortgage at year end at a better rate. The early repay.lment is 3% which if the rate halved is about 6 months rent. Give ot take.
