Mortgage Rate Rises

[HungryHippos]

If bank loan interest rate higher than mortgage interest then no, otherwise potentially yes. Better off overpaying most likely to keep bringing the balance down as small as it can go.

Most people don't have small enough mortgages for a bank loan to even be capable of clearing them (me among them).

 

[Freakbro]

A quick look around and it seems the lowest rates for a personal loan is ~4.8%

 

[HungryHippos]

A quick look around and it seems the lowest rates for a personal loan is ~4.8%

That's comparable, if you could get that rate it seems the same as a new mortgage might be in this climate.

Some other factors then would be current mortgage rate, end date of current deal, ERC etc.

A new mortgage at around the same rate as a loan if the balance is small enough, loan would be worth considering.

 

[Mysterae_]

The terms of overpayment are also important.
Different lenders apply different rules, eg Nationwide have 3 options in effect
1) overpayments reduce future payments. keep term the same
2) overpayments reduce capital only and keep repayments the same. term reduced to match outstanding capital
3) overpayments reduce capital only and keep repayments the same. term left the same.

The default is I believe 1, and if you select reduce capital the default is 2.
3 is an option. Basically your not changing your commitment with this one.
So you could overpay on option 3, keep term the same, then change your mind and look to move to 1 and reduce your payments and keep term the same.
If you overpay on option 2 you by default have in effect locked in an earlier mortgage end date and as such your option to lower payments in future is wiped out.

As ever lenders can have quite different terms and conditions on things like overpayments so you really need to understand what happens in those scenarios.

My bank does option 2.

Is it a given that with all those options above the amount of interest paid each month is reduced with each overpayment? Or are you contractually obliged to pay the amount of interest you said you would when the contract was signed? With my bank any overpayment does reduce the interest paid going forward.

 

[HungryHippos]

Overpaying will reduce interest paid almost immediately I think, as it's recalculated based on the capital.

The sooner and the more you pay, the less interest you get charged.

 

[Mercenary Keyboard Warrior]

My bank does option 2.

Is it a given that with all those options above the amount of interest paid each month is reduced with each overpayment? Or are you contractually obliged to pay the amount of interest you said you would when the contract was signed? With my bank any overpayment does reduce the interest paid going forward.

I can't imagine that last bit is true.
In order for that to be correct they would have to increase your rate.

It may be they dont adjust your repayment amount immediately but that would result in more capital being repaid.

Can you cut and paste an extract with what it says?

Edit : Sorry did I misread or did you edit that.

The last part is right. As soon as you overpay capital your interest should drop in proportion.
If you leave repayments the same your going to see that ratchet up as by default your overpaying more and more every month.

 

[RedWarrier]

Checked my mortgage rate last month, just logged in and it's gone from 4.25% to 4.75% - frick, wasn't aware of yet another rise.

In a few months my rate has now gone from 0.84% to 4.75%.

I don't know whether to get a bank loan to clear the remaining balance or not.

A bank loan to clear a bank loan. Hmm, what could possibly go wrong?
Are you another one of those people who thought that ultra low interest rates was the norm?

 

[RedWarrier]

Base rates aren't stopping at 4.25 or 4.5%. All indices are screaming red, and everything ponts to circa 6% no matter what the incompetent Bank Of England have been leading people to believe these past 3 months.

 

[HungryHippos]

A bank loan to clear a bank loan. Hmm, what could possibly go wrong?
Are you another one of those people who thought that ultra low interest rates was the norm?

If your mortgage balance remaining is £10K then yes a bank loan can make sense.

If your mortgage is £100K then no, this is probably stupid.

You don't know how much the OP owes so hard to judge isn't it?

Mortgages at low balances can actually be harder to work with as well, you typically can overpay by 10% of your original balance, if you take out a £10K mortgage you can barely overpay anything.

At a small enough balance, I would consider a bank loan at a similar rate to be worth putting into the sorting hat of options.

 

[Mercenary Keyboard Warrior]

TBH best bet when mortgages are really low is whatever the best option is thats got no restrictions on.
Tracker, even their standard variable.

Unless your 100% sure you wont want to clear it asap then whatever is cheapest.

 

[Freakbro]

Base rates aren't stopping at 4.25 or 4.5%. All indices are screaming red, and everything ponts to circa 6% no matter what the incompetent Bank Of England have been leading people to believe these past 3 months.

I'd be surprised if BoE rate hit 6%

Pleased, but surprised.

 

[Mysterae_]

I can't imagine that last bit is true.
In order for that to be correct they would have to increase your rate.

It may be they dont adjust your repayment amount immediately but that would result in more capital being repaid.

Can you cut and paste an extract with what it says?

I'll have a look and see if it states anything in particular. I phoned them a few months back to see if there was any penalty or charges to making any overpayments and they said as long as the mortgage was not paid off during the 5 year fixed period then no charges would be made.

The monthly payment and percentage of interest charged each month would be the same for the 5 year period, as the capital borrowed is reduced so is the amount of interest paid, the capital borrowed will be paid off quicker - so the duration of the mortgage will be reduced accordingly.

 

[platinum87]

The terms of overpayment are also important.
Different lenders apply different rules, eg Nationwide have 3 options in effect
1) overpayments reduce future payments. keep term the same
2) overpayments reduce capital only and keep repayments the same. term reduced to match outstanding capital
3) overpayments reduce capital only and keep repayments the same. term left the same.

The default is I believe 1, and if you select reduce capital the default is 2.
3 is an option. Basically your not changing your commitment with this one.
So you could overpay on option 3, keep term the same, then change your mind and look to move to 1 and reduce your payments and keep term the same.
If you overpay on option 2 you by default have in effect locked in an earlier mortgage end date and as such your option to lower payments in future is wiped out.

As ever lenders can have quite different terms and conditions on things like overpayments so you really need to understand what happens in those scenarios.

How is #3 possible.

If you overpay then either term goes down, or the amount goes down?

 

[Mercenary Keyboard Warrior]

How is #3 possible.

If you overpay then either term goes down, or the amount goes down?

As I said above you can change things later and in effect revert back to that date.
Obviously if you pay it off, you pay it off, but if you switched to 1 and made a payment, with any outstanding balance, (you can switch between the options) then you would immediately have new monthly payments that get you to original term.

Edit to add. They consider overpayments a reserve as well so unless you adjust your term you can take payment holidays which would move you back closer to your original repayment date.

 

[Mysterae_]

I can't imagine that last bit is true.
In order for that to be correct they would have to increase your rate.

It may be they dont adjust your repayment amount immediately but that would result in more capital being repaid.

Can you cut and paste an extract with what it says?

Edit : Sorry did I misread or did you edit that.

The last part is right. As soon as you overpay capital your interest should drop in proportion.
If you leave repayments the same your going to see that ratchet up as by default your overpaying more and more every month.

Here's what I read a while ago and spurned me to call them to make sure:

It was the sentence "or part of it early" that was my concern but was told that only applies if you have multiple mortgages - a ported mortgage from previous and another mortgage. Just don't pay it off completely in the ERC period to avoid charges.

It doesn't exactly say that the term is reduced with overpayments but that can be assumed with the last sentence of the above image.

 

[Mercenary Keyboard Warrior]

I would say "part of it early" just means a partial repayment.

Find the section on interest, it should say something like "interest is charged on the outstanding balance and is calculated on a daily basis"

 

[HungryHippos]

Here's what I read a while ago and spurned me to call them to make sure:

It was the sentence "or part of it early" that was my concern but was told that only applies if you have multiple mortgages - a ported mortgage from previous and another mortgage. Just don't pay it off completely in the ERC period to avoid charges.

It doesn't exactly say that the term is reduced with overpayments but that can be assumed with the last sentence of the above image.

The partial thing I think is if you breach the overpayment limitations in any given year. Normally this is around 10% per year on your original balance.

If you overpay by say 20% in a year instead, you'd be liable for ERC on the extra 10% you went over by.

 

[Mysterae_]

I would say "part of it early" just means a partial repayment.

Find the section on interest, it should say something like "interest is charged on the outstanding balance and is calculated on a daily basis"

Here's the section:

The partial thing I think is if you breach the overpayment limitations in any given year. Normally this is around 10% per year on your original balance.

If you overpay by say 20% in a year instead, you'd be liable for ERC on the extra 10% you went over by.

I've not seen references to a percentage of overpayment limitation - the only limitation I see is paying it off in full during the ERC period. I could pay as much as I want off as long as the balance is not zero before the end of the ERC period.

There's a few mentions in the quoted image about "parts" etc.

I'll give them another call next week to make sure but I'm certain this is the case.

 

[m1ke]

I'd be surprised if BoE rate hit 6%

Pleased, but surprised.

Spoiler alert - it won't.

 

[ivrytwr3]

A bank loan to clear a bank loan. Hmm, what could possibly go wrong?
Are you another one of those people who thought that ultra low interest rates was the norm?

As @HungryHippos said, you really should know the facts before jumping to your uninformed conclusion.

£8k left on my mortgage which has gone from 0.84 to 4.75 in a few short months. If it goes any higher, I was contemplating getting a bank loan.

I know some would say to pay it off with savings etc, unfortunately with one at university and one soon to start and with all the recent price hikes, spare funds are very limited!