I think that's how it works, you don't change to the rate immediately, you lock it in for when your current product ends. That's how it is with Halifax at least, but then that's only 3 months in advance so maybe it's different.
Mortgage Rate Rises
- Thread starter glenimp617
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As we keep going back to this topic, it surely depends on how much is left on your mortgage and how much of a savings pot you already have/or are adding every month. E.g. if you have £100k left on your mortgage but are starting from scratch with the savings pot then it won't help half as much. 5% on a few grand ain't much!
EDIT: I thought I'd try MSE to compare the above numbers with a £100k mortgage remaining for 5 years @ 1.93%. I've probably done this wrong but here goes. Saving £500/month versus overpaying £500/month.
Saving £500/month then overpaying the £30k in a lump sum Nov 2027
Overpaying £500/month
So overpaying reduces your term and interest paid. I'm sure I've done that wrong, someone with a bit more time today can correct me.
EDIT: I didn't take into account the interest accrued when saving so I imagine you'd stick your lump sum in earlier no?
Say you took out a 200k mortgage for 25 years (assuming you had a 2% interest rate that whole time), that would give you a monthly repayment of £848 with a total interest cost of £54,312.
If you were to overpay by £500 a month from the start, this would give you a monthly payment of £1,348. After 14 years and 3 months you would have finished your mortgage and paid a total of £29,948 in interest. This is a saving of £24,364 of interest payments vs not overpaying.
If you were to save that £500 a month in a 5% gaining account for 14 years and 3 months you would have £124,328 having made £38,828 in interest. At the 14 year 3 month point of not over paying you would have a mortgage balance of £98,324 having paid £43,282 in interest. At this point you can pay off your mortgage with your savings pot and have £26,004 left over. The interest you paid minus this surplus would mean your effective payment on interest was £17,278, making you £12,670 better off vs overpaying.
There are ofc many other factors to personal finances that need to be taken into consideration as well as timing your products to avoid ERC etc, without even considering the assumptions here on constant 2% cost vs 5% gain. Purely from a maths perspective its worth doing. It just illustrates that as long as you receive a higher % return on your investments vs your mortgage you will be better off.
Inversely lets look at it from the view of a person over half way done with their mortgage from the above example. Say you have £98,324 left with a 10 year and 9 month term. That'll have you paying £848 a month with a total interest payment from then of £11,030.
With a £500 a month overpayment taking your monthly payments to £1348 you would finish after 6 years 6 months. Having paid £6,598 in interest.
If you were to save that £500 a month in a 5% gaining account for 6 years and 6 months you would have £45,972 having made £6,972 in interest. At the 6 year 6 month point of not over paying you would have a mortgage balance of £40,634 having paid £9279 in interest. At this point you can pay off your mortgage with your savings pot and have £5338 left over. The interest you paid minus this surplus would mean your effective payment on interest was £3,941, making you £2,657 better off vs overpaying.
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Caporegime
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There is the issue you'd have to pay tax on interest earnt on savings but not on interest avoided overpaying your mortgage.
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If you fall into that bracket yes.
You would also have to either not be saving into the various tax free methods like ISAs etc or have already been maxing out your yearly contribution for a sustained period of time, in which case please pass me some
Caporegime
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ISAs seem to be lagging well behind standard savings accounts in terms of interest at the moment.You would also have to either not be saving into the various tax free methods like ISAs etc or have already been maxing out your yearly contribution for a sustained period of time, in which case please pass me some
Definitely seems to be from now (Natwest). Will do a bit more digging.
I’m not changing my whole mortgage - I have two sub accounts as we ported her mortgage over and borrowed a bit more to buy our house. Maybe that changes things.
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Can barely get a sub 5% 2 year fixed now, even with a decent LTV (50% ). BBC saying they're going up again tomorrow as well..... thanks Liz.
Mortgage rates still rising as big lenders revise deals
The average rate of a new two-year fixed rate mortgage is 6% as the UK's biggest lenders change prices.
www.bbc.co.uk
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We're also sub-account types. I think it's probably just how different lenders roll.
Ah, you are right. Found this in some small print:
“The new rate will only commence after any current deal ends and you have electronically signed and returned your documents”.
I take it there’s not normally an option to withdraw once signed?
Anyone earning over 12.5k gets each £1 over taken out of the £5000 allowance it seems? So if you earn over 20k I think this means you have to pay tax on all interest earned?
Again on one of the MSE calculators you could tick a box for whether you were a PAYE/ lower or higher tax rate later etc and I think it tries to take it into account. For me it was saying it's still worth putting mine in savings compared to over payments as I fixed at 1.89 and some saving account rates are hitting around 5%.
Can barely get a sub 5% 2 year fixed now, even with a decent LTV (50% ). BBC saying they're going up again tomorrow as well..... thanks Liz.
Mortgage rates still rising as big lenders revise deals
The average rate of a new two-year fixed rate mortgage is 6% as the UK's biggest lenders change prices.www.bbc.co.uk
going up quicker than first thought, i can see it being 7% for a 2 year fix by Christmas
Anyone got anymore decent savings accounts floating about?
Already took advantage of that Barclays Rainy Day saver @ 5.14% (or whatever it was) x 2.
Got another £40k or so but will need to access it again in a couple of years...guessing cash ISAs?
Already took advantage of that Barclays Rainy Day saver @ 5.14% (or whatever it was) x 2.
Got another £40k or so but will need to access it again in a couple of years...guessing cash ISAs?
I saw some 4%+ 2 year cash ISAs around earlier so they are getting there
MSE has added a 'compare overpaying to savings' option to their overpayment calculator.
www.moneysavingexpert.com
Mortgage Overpayment Calculator: Pay off your debt early?...
Mortgage Overpayment Calculator shows how much you can save by paying off your mortgage early - if your mortgage allows overpayments.
www.moneysavingexpert.com
Don't think it works as you want current fixed term not total term length.MSE has added a 'compare overpaying to savings' option to their overpayment calculator.
Mortgage Overpayment Calculator: Pay off your debt early?...
Mortgage Overpayment Calculator shows how much you can save by paying off your mortgage early - if your mortgage allows overpayments.
You were thinking of joining the property ladder and then letting it out, instead of living there? Not sure I follow your post.
what to be a btl? sucks
people need roof over their heads not more BTL properties.