From: "Tumbleweed" 
Newsgroups: uk.finance
Subject: Re: VARIABLE RATE V FIXED RATE
Date: Sun, 4 Apr 2004 16:27:33 +0100


 wrote in message
news:cv7070l9qsdj4bacrvbj58u6kkvjkha5a8@4ax.com...
> On Sun, 04 Apr 2004 15:34:17 +0100, Phil Deane
>  wrote:
>
> >sam1967@hetnet.nl wrote:
> >
> >> From the Property Times
> >>
> >> "homeowners continued to shun fixed-rate mortgages, opting for cheaper
> >> variable rate ones instead. Just 21 % of new loans taken out were
> >> fixed rate...while 77 % were variable deals, with interest rates
> >> averaging 4.57 % compared with 4.85 % for fixed-rate mortgages."
> >>
> >> i find that incredible. i assume a fixed-rate mortgage is fixed for a
> >> period of 10 years. why would people take such a gamble on interest
> >> rates remaining low for .25 % ?
> >> surely if rates fo up by a couple of points those on variable rate
> >> mortgages will be left looking very foolish indeed.
> >>
> >> i also assume that these variable rate deals are only popular when
> >> interest rates are very low - as they are today.
> >>
> >> will this be were the string starts unravelling ?
> >
> >Fixed Rates are generally higher, and also are more likely to include Tie
> >Ins, That is is why people choose them. They are looking at bottom line
> >immediate costs and flexibility.
>
> who will be better off if rates rise by 2 points VR  or FR ?

Who will be better off if they dont?

> surely the VR people are taking a gamble ?

So are the FR people! They are gambling rates will rise above the average of
where they fixed over time (or they cannot afford a rise). In the latter
case, they are gambling their employment status will remain the same.

> seems like classic British short-termism at work.
>

Why? Seems like a reasonable bet. So far, from what I recall of interest
rates, you'd have been better off over the past 10 or so years by just
jumping from one 2 or 3 year fixed rate to the next one, irrespective of the
fact that 2 or 3 years isnt exactly long term for interest rates. Someone
who took out a fixed (say) 10 year at hmm, what would rates have been 10
years ago...lets say about 10% I'd guess (8% ish, plus 2 extra for the 10
year fix???) would have lost out big time.

-- 
Tumbleweed

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