Thursday, June 9, 2011

Retrospective Financial Advice

Homeowners lose thousands on long-term fixed-rate mortgages

Fixing her mortgage rate has cost prudence dearly, if she had taken out a two-year fixed-rate £150,000 mortgage in 2007 at around 5.5pc instead of the Nationwide home loan her friend Gordon the financial advisor recommended, she would have paid £83 less every month. After the first two years, the fixed rate would have dropped to a standard variable rate of 2.5pc, meaning her 10-year fixed rate mortgage is now costing her £324 a month more than her less risk-averse neighbours with the shiny beemer on the drive.

Posted by enuii @ 12:03 AM (1809 views)
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7 thoughts on “Retrospective Financial Advice

  • mark wadsworth says:

    OMG, whine moan whine.

    I cheerfully admit to having signed up to a ten year fixed rate mortgage when I bought a house back in 1998 (being Germanic in these matters) which gave me an affordable monthly repayment which would pay off the loan after eleven years.

    The nominal rate was 6.85%, clearly, for a large part of that eleven year period I was a bit miffed that interest rates fell, hey ho, whatever, I duly paid off the mortgage* and sold the house ten years later.

    The fact that I made a handsome profit on the final sale and paid half as much as I would have done renting is by the by, that was my decision and I stuck to it.

    * Down to the last £10,000 or so, obviously.

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  • ontheotherhand says:

    They should add that all the people insuring their houses for fire are wasting their money. Most of the time they don’t burn down and so they would be £x better off per month without any insurance. And at the same time they should tell people not to bother with Savings for a rainy day. Putting £y per month into a savings plan is a waste of money because you might never need it and you can’t spend it right now.

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  • More moaning.

    She ought to try renting and see how she likes that.

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  • Another excuse to have a pop at Gordy. Now, I’m not his biggest fan, but I actually agree with him about this – longer-term mortgages would be a good thing in helping to smooth volatility. Of course, this is only a small part of a much bigger picture, but he was onto something.

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  • I’m sure she will be compensated eventually, just like PPI, Icesave, bank charges, the poor performance of investment funds underlying some endownments … obviously she will need to get in line behind these victims though http://www.ftadviser.com/FTAdviser/Regulation/Regulators/FSA/News/article/20110608/e9e1689e-91d7-11e0-89aa-00144f2af8e8/FSA-winds-up-unauthorised-land-bank.jsp

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  • @4 fancypants – I’m assuming you mean longer fixed rate terms would help borrowers? I support that, in fact full term fixes would be nice to have for many risk averse borrowers.

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  • @1 Mark – I’m in a similar position with a 5 year fix taken out a couple of years ago in the mistaken belief that rates would be low temporarily. However, the fix provided peace of mind in uncertain times and it has served it’s purpose, and with the mortgage down to 4 figures my only wish is for rates to skyrocket… But I won’t be holding my breath on that one.

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