Mortgage Rate Rises

[wesimmo]

That's why I was a little confused myself. I'd read on MSE that it's better to overpay and reduce term rather than it reduce payments as you end up paying less overall if it reduces the term, at least that what it said on the MSE site.

Although the term of the mortage won't change, because that's the term you contractually agreed to, you will have ended up paying off the mortage before the end of the term if you never remortgage.

For example, my interest charge went from ~£85 to ~£75 a month when i paid off a lump sum. So now £10 a month more of more of my monthly payments are paying capital rather than interest plus I've also paid off £4.5k, so I will have paid the total I borrowed off well before the planned 25 years.

Otherwise as said above, the overpayments will help your choices on your next mortgage.

 

[DJMK4]

Im stuck what to do at the moment , Iv mentioned I'm on a 5 year virgin money mortgage fixed rate 2.5% which comes to and end on its fixed term next may/June.

Its non decreasing early repayment though so I'd have to suck.up £5k if I wanted to remortgage now

Is there anyone else in the same boat ? Ending around may / June next year but have to pay a hefty charge to leave ? What are you doing ?

 

[leoncuprar]

Currently a 3k ERC, just going to ride it out and hope for the best in March next year when I can avoid the ERC..

 

[Fluke?]

Is the general consensus to overpay as much as possible while on a good fixed rate? Assuming so but confirmation would be welcome!

 

[Nemiyen]

Is the general consensus to overpay as much as possible while on a good fixed rate? Assuming so but confirmation would be welcome!

Overpaying is always a great idea but make sure you don't go over your overpayment limit.

Usually, it's 10 percent of the remaining amount per year. You'd need to check the T&C's of your own mortgage though.

 

[wesimmo]

Is the general consensus to overpay as much as possible while on a good fixed rate? Assuming so but confirmation would be welcome!

I'm not...

I've got £25k set aside to pay off my mortage, but can only do £5k per year due to T&Cs.

While I was going to max it out each year from that 25k and then pay off the rest at the end of my fixed rate, I'm now going to lock it into a fixed savings account that will easily yield 5% I reckon. I'm fixed at 2.02 so I will make more in a guaranteed savings account.

 

[itsallaboutyou]

There’s deffo not a one size fits all answer - but for us - despite being able to manage the repayments at our current rate and term, a little bit of wiggle room means we can put a bit aside each month. We’re a young(ish!) couple with 4 kids under 8, both in well paid jobs they aren’t really subject to market pressures. Pensions will come after we pay the mortgage off - so at least for the next 5 years - we’re going to keep living within our means and treat the kids. We only holiday in the UK - the heatwave was bad enough!! I tip my hat majorly to anybody brave enough to take kids abroad!

 

[Minstadave]

Is the general consensus to overpay as much as possible while on a good fixed rate? Assuming so but confirmation would be welcome!

If you can get a better rate on a savings account do that and just knock it off at remortgaging time.

 

[Deleted User 298457]

Is the general consensus to overpay as much as possible while on a good fixed rate? Assuming so but confirmation would be welcome!

Not really. Pay bare minimum and put the rest in savings that beats your mortgage rate

edit: b10

 

[Scam]

Not really. Pay bare minimum and put the rest in savings that beats your mortgage rate

edit: b10

It's not that simple though. If you're paying off say £200k on 2% interest then adding another £500/month to your payment would make a big difference. Starting a new savings account at 4% putting the same amount in would only net you £6k/yr. I'm not sure the interest on that is comparable to the interest saved on your £300k loan, is it? (Actually question, I'm really not going to try the maths myself )

Not to mention you can't get to the end of your fixed-rate and plan on paying off a huge amount in one massive hit. Most mortgages will only allow a percentage of your loan to be paid off every year as overpayments (for example, ours is 10% of the loan, max). Again, depends a lot on your individual circumstances.

The answer is everyone needs to do their own sums. Personally I'd feel better (as I always have done throughout my life), paying off a loan rather than trying to 'game' it. Also, the way the world is going, with our current leaders I'm almost to the point that I'd feel wary about having any big amount of money left in a savings account (Tin foil hat time!). For us, we did some quick sum and the rates are changing so much, we've spent so many years chasing good interest rates we're thoroughly bored of that and would rather not spend the mental capacity when we could just lump it into overpayments

 

[Rob_B]

If you pay £500 a month extra you save interest on that £500 only, same as you earn it if it was in savings.
2% of £500 is less than 4% of £500

After a fixed deal expires you'd likely move to SVR where ERC doesn't tend to apply (I'm sure there are some providers where it does)You can time it so an overpayment doesn't cost you anything.

All that said, I personally just overpay due to the pitiful difference it would make for my circumstances, in your £500 example the difference is maybe £100 a year (?)

 

[Gammawolf]

It's not that simple though. If you're paying off say £200k on 2% interest then adding another £500/month to your payment would make a big difference. Starting a new savings account at 4% putting the same amount in would only net you £6k/yr. I'm not sure the interest on that is comparable to the interest saved on your £300k loan, is it? (Actually question, I'm really not going to try the maths myself )

It is technically better to have it in a savings account, I did the math on a hypothetical new 100k mortgage for 25 years at 2%. You were 1.5kish better off saving the 500 a month and paying it off at the end than over paying the 500 monthly if you could achieve 4% return on it. But as you said, you need to make sure you can actually pay it off without incurring fees etc if the goal is to be mortgage free. Also a lot of assumptions such as you keep 2% mortgage for 10 years as well as make 4% for 10 years

 

[unwashed potato!]

All that said, I personally just overpay due to the pitiful difference it would make for my circumstances, in your £500 example the difference is maybe £100 a year

Exactly my thought. Better to have it gone and paid off, rarher than say, tempting for a holiday when you see a nice big pile, and then in future you won't have money to pay off the mortgage when you wish you did as rates have gone up.

With that said, having money in a savings is more accessible should you have an emergency, and, if your mortgage is sub £100k, the difference isn't going to be that much.

I have £270k left, so paying off 5 or 10 percent extra each year makes a big difference.

If I had say 70k left, paying off 10 percent really doesn't change much in terms of monthly mortgage payments.

 

[Slam62]

Exactly my thought. Better to have it gone and paid off, rarher than say, tempting for a holiday when you see a nice big pile, and then in future you won't have money to pay off the mortgage when you wish you did as rates have gone up.

With that said, having money in a savings is more accessible should you have an emergency, and, if your mortgage is sub £100k, the difference isn't going to be that much.

I have £270k left, so paying off 5 or 10 percent extra each year makes a big difference.

If I had say 70k left, paying off 10 percent really doesn't change much in terms of monthly mortgage payments.

Can you still get offset mortgages? Best of both worlds

 

[kona786]

It's not that simple though. If you're paying off say £200k on 2% interest then adding another £500/month to your payment would make a big difference. Starting a new savings account at 4% putting the same amount in would only net you £6k/yr. I'm not sure the interest on that is comparable to the interest saved on your £300k loan, is it? (Actually question, I'm really not going to try the maths myself )

Not to mention you can't get to the end of your fixed-rate and plan on paying off a huge amount in one massive hit. Most mortgages will only allow a percentage of your loan to be paid off every year as overpayments (for example, ours is 10% of the loan, max). Again, depends a lot on your individual circumstances.

The answer is everyone needs to do their own sums. Personally I'd feel better (as I always have done throughout my life), paying off a loan rather than trying to 'game' it. Also, the way the world is going, with our current leaders I'm almost to the point that I'd feel wary about having any big amount of money left in a savings account (Tin foil hat time!). For us, we did some quick sum and the rates are changing so much, we've spent so many years chasing good interest rates we're thoroughly bored of that and would rather not spend the mental capacity when we could just lump it into overpayments

I'm pretty sure you can pay an unlimited lump sum in the last month of your term fee free.

 

[kona786]

Overpaying is always a great idea but make sure you don't go over your overpayment limit.

Usually, it's 10 percent of the remaining amount per year. You'd need to check the T&C's of your own mortgage though.

Mine is 10% of the original loan amount. Mine is even the original loan amount before my renewal last year. Stayed with nationwide.

Original amount 225k, renawal was about 180k.

My 10% is still @ 22.5k.

 

[Harnser]

Can you still get offset mortgages? Best of both worlds

Yes but they hit you with higher interest rates in return for the flexibility.

 

[~Divine~Wind~]

@squerble
@Chris344
@~Divine~Wind~

Sorry for the tag - phone is a nightmare!

I think it is a sensible offer by them. We’d be ok with the original term - without having to struggle too much - but it made sense for us.. I think!

As we were borrowing more - we did have to send up to date payslips but that was pretty much it.

As for interest only - that genuinely was an option given to us - had we been in dire straits I’d have deffo considered it - but there’s something about interest only (in our situation) that’s never really sit well with me. Probably as it’s only in the last 5 years - that I’ve become financially sensible!!

Its good to hear that the banks are applying some sense
I agree its deffo a decent offer and I hope other banks do similar, putting everyone back into mortgage traps isn't gonna be doable.

If they offer people periods whereby they can pay the interest only and then pickup the capital at a later date I imagine that would be of great help to some

 

[regulus]

Different country but broadly the same interest rates.

I currently have my mortgage split across three different portions.

Portion 1 @ 3.39% (until October 2024)
Portion 2 @ 3.39% (until October 2023)
Portion 3 @ 6.5% This is a variable rate but as of 04/10/22, I have £1415.32 owning on that. Needless to say, it'll be gone this month. Of course this is the month where our yearly insurances are due and the quarterly council tax is due

I can pay of 5% of the outstanding value of each loan per annum. Which is what I've been doing. I've been overpaying to within a penny of what I'm allowed to without penalties. But there's no getting away from the fact that rates are rising.

What I did during the last cycle of fixing, was to float/variable about 35k a year which I can comfortably pay off without incurring too much interest (due to low variable rates), but now the float/variable rates are marching towards 7% and my biggest portion, Portion #2 will be around £65K, and while I don't think my next fix will be double the current interest rate, it won't be far of.

So I'm thinking that I could sell some investments (that's down about 4% from ATH but still up about 40% overall) and pay off that portion. The portion coming free in 2024 will be around £39k at the time which I can just chip away at.

So I guess the question is after all the waffle above. Do I sell the investment and pay off the mortgage or not? Yes, I know there is no right answer, but what would you guys do?

 

[_Jimlad_]

Im stuck what to do at the moment , Iv mentioned I'm on a 5 year virgin money mortgage fixed rate 2.5% which comes to and end on its fixed term next may/June.

Its non decreasing early repayment though so I'd have to suck.up £5k if I wanted to remortgage now

Is there anyone else in the same boat ? Ending around may / June next year but have to pay a hefty charge to leave ? What are you doing ?

you should be able to agree a new mortgage shortly if your ends in May 2023

often around 6 months in advance