Life

The Cheddar Mortgage

It is enirely plausible that my distant ancestors once lived in caves.  I can see the appeal of a cave for a person who lived in a world without bricks, tiles and mortar. A cave offers a reasonable level of shelter. I don’t live in a cave, however. I’m mightly pleased about the introduction of bricks, tiles and mortar into the construction process. If at all possible, I’d like to continue living in my modern, comfortable, warm brick and mortar based property. All I need to do is keep paying my mortgage and home insurance payments.Our mortgage is a fixed two year deal, which will soon end. Getting a good new mortgage deal is a big deal. So I’ve been studying the market and assessing our options for the last few months. The first decision was simple. To stick or swap providers? I say stick. There are other providers a little cheaper, but not sufficiently so to warrant the initial cost and aggravation of switching.

The second decision is tougher. We live in interesting times, politically and economically. Interest rates are incredibly low right now. But Brexit looms large. As does a giant debt bubble. Other factors make the future hard to predict – impending doom might be a matter of when not if. But when is when? Do I gamble with a new 2 year fixed deal? Play safe with a slightly pricier 5 year deal. Or assume the very worst and fix it for 10 years.

Essentially, can anyone tell me exactly when it is all going to go bang, please? Should I actually be looking for a decent Brexit and Trump proof cave to call home instead? There are some decent candidates in Cheddar and at least one of them has a decades worth of cheese maturing in it. However, the small reflective pools were far more photogenic than the stacked truckles of cheese, so I snapped them instead.

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12 thoughts on “The Cheddar Mortgage

  1. Colm says:

    I’ve been very lucky with the homes I’ve owned and lived in and buying low and selling high has worked every time for me. The last one indeed made me a tidy sum that I’d never have accumulated in the ordinary way! However when it comes to mortgages you will probably find that as Brexit begins to bite your likelihood of a cheap mortgage will evaporate. Interest rates will climb and money will become expensive to borrow. Of course I may be wrong, perhaps the banks will be giving incentives to borrow lots of dosh to propel profits but I feel they will be more cautious and will draw in the purse strings and raise interest rates to stem the flow!
    The good news is that your home is you best asset in the long run for you but paying off the mortgage as soon as you can will help you save a bundle in the long run. The banks know this and have us over a barrel and for your first ten or fifteen years you will be paying off just the interest and very little on the house purchase itself. Here in Canada and maybe there as well you can pay your mortgage bimonthly but it does trim your sails somewhat as paydays don’t always fall in the right sequence but if you are diligent you can shave ten years or more off your repayments over all. Sometimes it is worthwhile to change banks or appear to be considering it to get a better deal from your present lender, just double check that the underwriter isn’t the same company with the other bank.
    Now although I have lived half my life in a home like yours with concrete bricks and concrete tiles my present house has none of those at all! I have concrete foundations but other than that the framing is entirely wooden with oak flooring from California. The roof tiles are a composite of Kevlar, Fiberglas and tar. Sadly I’m a little long in the tooth these days but I’m sure at one time I’d have loved to have lived in an earthen dwelling an adobe perhaps made with mud and straw.. but my long suffering wife wouldn’t have any of it, the cost of love I suppose.
    Best of luck with your next mortgage Gary..

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    • The main factor of the EU referendum vote regards my mortgage, is the the fall in value of the pound helped drive up inflation. It’s been sticking well above the target rate for quite some time. The BoE held interest rates – the normal tool to combat high inflation – last week, but the indications given were that a rise is on the way, possibly in May. And further rises are likely soon after.

      I can tell you what I’d love to do. I’d like to stick a roof full of Tesla tiles on my roof and hook it up to a Tesla Powerwall battery. But I’d need a second mortgage just for that alone. Also, I live in a flat, and within a block which doesn’t have the best aspect for catching sunrays. But still. Maybe by the time we’ve progressed onto a terraced house, prices will have fallen somewhat…

      I like a lot of what Tesla is doing. I’d buy a Model 3 in a heartbeat if I had the cash.

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  2. norm says:

    Cheap money will be here as long as the far east saves more than it consumes, according to the econ people; I’m not so sure of that.
    Look at the amount you would spend to buy the longer term (ten year) and then think about what I paid on my first mortgage, (14% ) in 83,, or the 8% in 94 on my second house. I read once that money rates have been 4% on average from the time of Christ-how they figured that one is anyone’s guess-my parent’s mortgage in 65 was 6%. I remember thinking I would kill for that rate when I was paying 14%.
    We still have negative interest rates in some places around the world, if you factor in inflation, most places in the developed world.
    I always took out 30 year notes and paid double what they wanted but it is my understanding that a 30 year type American note is not an option in Britain.
    I like the peace of mind of ten years, if the black clouds form, you have more time to batten down the hatches.

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    • The base rate here is currently at 0.5%. It is, unless something quite extreme happens, only going to go up. By how much and how quickly is the question. The answer seems likely to be by more and sooner that was estimated only a few months ago.

      I’m looking at 2.29% for a 5 year deal. Or 2.94% for a 10 year deal. The difference is about £3500 over that first five years. How much more expensive will a new 5 year deal be in 2023? Trying to second guess it seems much like witchcraft. If rates go up by 2 or 3% then it’ll have been worthwhile going for 10 years. My hunch is that’s what I’ll do. But I’ll only get that 10 year option if my LTV ratio is 80% or better and I’m very borderline…

      Stay tuned.

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  3. The answer to your question depends heavily on optionality. Here in the USA, you can always pay off a mortgage before its time, essentially what you do when you refinance. So while a series of short term rates will be lower than a long term rate assuming that generally rates don’t rise, there are plenty of indications that the cheap money era is coming to an end.

    So, if faced with the same choice as you, I’d look at the optionality. If I could get a long-term mortgage at a fixed rate that would still let me repay it early, I’d take that. That way you are protected if rates rise, and you can refinance if they fall.

    Heads, you win, tails I lose.

    Saludos,

    Kim G
    Redding, CA
    Where inflation protected bonds have been mostly outperforming since mid-August.

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    • If we pick a fixed rate deal, we can overpay by 10% but there are stiff penalty fees if we try and settle early. The mortgage is portable though, so moving home is not necessarily a problem.

      So I seem to be playing with a three sided coin, and I win on only one of them.

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      • Well, in that case, you need to make a spreadsheet so you can find out what the breakeven interest rate would be if you had to pay the penalty to refinance. My guess is that it’s probably absurdly low. However, you can’t know until you make the spreadsheet. Best of luck.

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        • Unfortunately, the penalty fee for settling within the fixed term is extortionate. Between 2% and 3% of the original mortgage amount, depending when I settled. Which, obviously, I would not be inclined to do. No spreadsheet needed here!

          However, I did create a basic spreadsheet to calculate at what level interest rates would need to be in 5 years to make taking a 10 year deal now pay off. If rates rise by 1.5%, I’ll break even. Any higher increase over the next five years and the 10 year deal was a good idea. I’m of the opinion that there is a substantial likelihood that rates will rise by more than 1.5%.

          What thinks you?

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  4. Colm says:

    The dies are weighted in their favour every time! Where we gain is when the properties rise in value and are sold. Your rates seem to be very affordable compared to ours.

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    • I guess they have to be. If it were any other way, they’d be charities and not banks. In my favor is a continuing shortage of housing in the UK which keeps values increasing. There is a limit though, for obvious economic reasons.

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