Mortgage Rate Rises

[Foghorn Leghorn]

Paid another chunk off mine as I had accumulated savings and I keep flirting with buying expensive watches

Down to 19k now, so not much further to go before being mortgage free

Another 4.5 years to the end of my fixed term and I'll be in the same position, cash is sat ready to pay off the remainder.

 

[Foghorn Leghorn]

Have mentioned before that I managed to go mortgage free just before my 40th.

We then (the wife) bought a bigger house and so back to square one in a bigger, harder to clean space...

That's pretty much exactly what we did

 

[[FnG]magnolia]

Related to thread but probably for a limited audience.

 

[decto]

Each time you remortgage, what term do you ask for? i.e. Say you initially did a 25 year term and you come to the end of your 5 year fix. Do you then remortgage on a 20 year term or go for a 25 again to minimize monthly payment commitments being lower and then have the flexibility to overpay?
I was thinking...what would be the implications of just always asking for a really long 30 year term and overpaying each month. I guess you could then hit the maximum overpayment during a period.

My first was 25, moved to a much bigger house, relationship ended so found myself at 5.3x salary 6% 30 years (gulp) overpayed that for a while, then a 20 year offset, then finally a 15 year which will be paid off in just under 7 years in the next couple of months. Overall time with mortgage will be around 24.5 years.

My strategy was to take a longer period so I had lower payments if things got sticky, but then overpay as much as I could reasonably afford. I always looked for generous overpayment options. Basically 50% of any pay rise went on mortgage payments. No other credit payments so looking forward to it.....

Except someone wants the drive done, a kitchen extension, a new kitchen, a loft conversion .... etc. etc. oh and then support for the kids when they go to uni and a deposit so they can actually leave some day....

No 5090 in my future .....

 

[413x]

Paying off our mortgage made zero difference to how I live my life on a day to day basis. It's not like I spend more money on luxuries or whatever. It did make me feel slightly more secure however to the extent I quit my job without another one to go a few years back. Had another kid since then anyway, goodbye mortgage, hello childcare fees
Without kids, it would be a different situation for you, you could e.g. just say stuff it we're going on holiday on some random week outside the school holidays with no constraints, using the extra money to fund that.

I'm starting to hit the problem of time off. It must be resolved at some point. There simply isn't enough annual leave anymore.

This year I'm using every single day for a proper holiday. And they are (for me) quite expensive holidays. But to utilise more money. I need more time off. It's another reason why there's no point for me trying to accelerate paying off the mortgage.

 

[delta0]

Each time you remortgage, what term do you ask for? i.e. Say you initially did a 25 year term and you come to the end of your 5 year fix. Do you then remortgage on a 20 year term or go for a 25 again to minimize monthly payment commitments being lower and then have the flexibility to overpay?
I was thinking...what would be the implications of just always asking for a really long 30 year term and overpaying each month. I guess you could then hit the maximum overpayment during a period.

Shorter the term the less interest but higher monthly payments. However it’s usually to continue the count down of the years so in your example continue a new fixed term at 20 years. If you needed to reduce the monthly payments then extending it would do that and if you wanted to clear the mortgage faster then shorten it. However changing the term can trigger a review by the bank so they can check finances etc.

 

[Simon]

My shed is mortgage free. Big deal.

 

[Narj]

Paid another chunk off mine as I had accumulated savings and I keep flirting with buying expensive watches

Down to 19k now, so not much further to go before being mortgage free

I thought paying off my mortgage would change my life massively.

Instead I'm just stressed about retirement now and saving/investing aggressively and still living like a pauper.

 

[Nemiyen]

I thought paying off my mortgage would change my life massively.

Instead I'm just stressed about retirement now and saving/investing aggressively and still living like a pauper.

You need a balance between living like a pauper and enjoying things while you can.

 

[Narj]

You need a balance between living like a pauper and enjoying things while you can.

You'd think I'd have sorted that out given I've seen too many friends and work colleagues die in their 50's (I'm mid-40s) but I just absolutely hate spending money. I blame my upbringing and also unexpectedly being made redundant when I was younger which caused the hardest times of my life. I've promised myself some proper holidays this year though, thanks for the nudge.

Seriously though, paying off your mortgage is one of the best milestones you can hit because it suddenly gives you some interesting options for passive income, relocating etc. Getting there tends to involve a lot of painful sacrifices and I do wonder if I pushed too hard at times and missed some good opportunities.

Oh, I do remember being advised to invest a pile of cash I'd accrued and using that and the gains to pay the mortgage off several years later - well that advice didn't age well and I'm glad I ignored it!

 

[Nemiyen]

You'd think I'd have sorted that out given I've seen too many friends and work colleagues die in their 50's (I'm mid-40s) but I just absolutely hate spending money. I blame my upbringing and also unexpectedly being made redundant when I was younger which caused the hardest times of my life. I've promised myself some proper holidays this year though, thanks for the nudge.

Seriously though, paying off your mortgage is one of the best milestones you can hit because it suddenly gives you some interesting options for passive income, relocating etc. Getting there tends to involve a lot of painful sacrifices and I do wonder if I pushed too hard at times and missed some good opportunities.

Oh, I do remember being advised to invest a pile of cash I'd accrued and using that and the gains to pay the mortgage off several years later - well that advice didn't age well and I'm glad I ignored it!

What did you end up spending the money in instead?

My girlfriend reminds me that life is for living, otherwise I'd never go on holiday and would just buy random crap I don't really need and keep chipping away at the mortgage! I'd never even been abroad until we started going out so I was never bothered about holidays. (Still aren't to be honest but I do enjoy myself while I'm there!)

I'd happily just put that holiday cost towards a new gadget or toy or against the mortgage if she'd let me!

I've always bought things on credit cards and paid them off over time, either with or without paying interest and it never really bothered me until I got wiser and now it bugs me paying ANY interest lol. But needs must on a mortgage and it's still better and usually cheaper than renting!

 

[Narj]

What did you end up spending the money in instead?

My girlfriend reminds me that life is for living, otherwise I'd never go on holiday and would just buy random crap I don't really need and keep chipping away at the mortgage! I'd never even been abroad until we started going out so I was never bothered about holidays. (Still aren't to be honest but I do enjoy myself while I'm there!)

I'd happily just put that holiday cost towards a new gadget or toy or against the mortgage if she'd let me!

I've always bought things on credit cards and paid them off over time, either with or without paying interest and it never really bothered me until I got wiser and now it bugs me paying ANY interest lol. But needs must on a mortgage and it's still better and usually cheaper than renting!

The pile of cash was used to pay almost all of the remaining mortgage off in direct contradiction to the advice I'd been given - couldn't go anywhere or do anything much during lockdown anyway and I already have an emergency fund.

See that's something else that disappeared - the need for random crap. I'm the complete opposite now and am always getting rid of stuff - I prefer experiences over things and those don't necessarily have to cost a load of money anyway.

Good work weaning yourself off credit but it does have its place. 0% credit cards are great for doing stuff like a new kitchen which you can pay off over time - as long as you make the payments like clockwork and make sure you don't incur interest. Best of luck getting your financial freedom!

 

[Nemiyen]

The pile of cash was used to pay almost all of the remaining mortgage off in direct contradiction to the advice I'd been given - couldn't go anywhere or do anything much during lockdown anyway and I already have an emergency fund.

See that's something else that disappeared - the need for random crap. I'm the complete opposite now and am always getting rid of stuff - I prefer experiences over things and those don't necessarily have to cost a load of money anyway.

Good work weaning yourself off credit but it does have its place. 0% credit cards are great for doing stuff like a new kitchen which you can pay off over time - as long as you make the payments like clockwork and make sure you don't incur interest. Best of luck getting your financial freedom!

Ah I understand now, I read that sentence as you used the money to do something else! But I see now.

Our house isn't an amazing one by any stretch but it's good enough and I like it. If things had gone well with work shares we could be mortgage free by early 40s but it's looking like mid 40s now. I need a new car too so I'm toying with either something cheap, to stay on track with the mortgage, something reasonable so may be on track with the mortgage or mid life crisis and push back clearing the mortgage to late 40s!

I've got about 10k on credit cards (all interest free) and the same in premium bonds so I'm hoping for a big win but just cashing them in as I need to clear the cards. I'm not bothered about debt I just prefer not to pay interest on it and as you say, 0% cards are great and the balance has been for holidays and a few things for the house.

 

[Narj]

Ah I understand now, I read that sentence as you used the money to do something else! But I see now.

Our house isn't an amazing one by any stretch but it's good enough and I like it. If things had gone well with work shares we could be mortgage free by early 40s but it's looking like mid 40s now. I need a new car too so I'm toying with either something cheap, to stay on track with the mortgage, something reasonable so may be on track with the mortgage or mid life crisis and push back clearing the mortgage to late 40s!

I've got about 10k on credit cards (all interest free) and the same in premium bonds so I'm hoping for a big win but just cashing them in as I need to clear the cards. I'm not bothered about debt I just prefer not to pay interest on it and as you say, 0% cards are great and the balance has been for holidays and a few things for the house.

You’ve got it absolutely right.Too many people became fiscally irresponsible because they wanted their “dream home” and over-leveraged themselves.

People need to learn to find their happy medium and go with it. One guy I know is renting his house out and has moved back in with parents along with his partner and child while he rents his house out and that just seems awful to me.

I think this year is not going to be pretty and I really hope most get through it with no more pain than a life lesson.

 

[HangTime]

Have mentioned before that I managed to go mortgage free just before my 40th.

We then (the wife) bought a bigger house and so back to square one in a bigger, harder to clean space...

Yeah the fact we're mortgage free needs to be considered in the context that we still live in the same house we bought over 15 years ago, since then we've both grown as a family (2 kids) and increased earnings (my wage has more than quadrupled) - in those circumstances, I suspect the majority of people would have traded up to a bigger, more expensive home.

Each time you remortgage, what term do you ask for? i.e. Say you initially did a 25 year term and you come to the end of your 5 year fix. Do you then remortgage on a 20 year term or go for a 25 again to minimize monthly payment commitments being lower and then have the flexibility to overpay?
I was thinking...what would be the implications of just always asking for a really long 30 year term and overpaying each month. I guess you could then hit the maximum overpayment during a period.

We had a 20 year mortgage, 18 month fix. When the fix was up, we changed to a 7 year term lifetime tracker as I predicted interest rates were very likely to drop, I had a small inheritance and I also earned more money. Basically the term length was driven by what was necessary to make monthly payments of £x, this was a value we were comfortable with.

I take a fairly simplistic view around mortgages that I want the shortest term that we can afford with some leeway, because I have a natural aversion to debt. That said, you probably get more flexibility from an overpayment approach i.e. longer term meaning if you needed to you could just stop overpaying and fall back to the lower payments, which you can't do on a short term.

 

[Nemiyen]

I'm on the cusp of accepting a 5 year mortgage with HSBC on 4.04% and paying the ERC charge of 1.1k (which pains me, as that's a new Ps5 and some games) to switch from a 2 year deal on 5.84%. Right now, this will save us about £66 per month that if I overpay for 5 years, will shave about 6k off the mortgage when we renew. Right now, this sounds like a no brainier.

BUT... are we on the cusp of a crash worse than the banking crisis? Debt is massive, our UK debt (and US) is massive and high interest payments just compound this. Interest rates are high because of inflation but high interest rates can cripple an economy if the debt payments are so high, which they are!

Employment is high (from what I can see) so now should be the time where we are making good progress to reduce our debts but according to the ONS, our debt is just going further up! High interest rates stagnate companies, people lose their jobs and rely on government handouts, people pay less tax and that debt is going to go up even faster!

If we are back to pre banking crisis then 4% is a good rate and I should snap their hand off to accept it! But the banks only offer this because they believe the rates are coming down, potentially below 4%.

My girlfriend is money savvy in the sense she has no debt but talking to her about this stuff just gets her ready to slap me.

I'm not financially educated in the slightest but research and learn myself and I just feel like I'm seeing a good rate right before something massive kicks off!

Edit: Throw in the fact that house prices are inflated due to low interest rates so house prices drop and then the reason for the banking crisis hits again! The books don't balance as the value isn't there and tons of people who stretched themselves on low to no interest rates are hit with a shock when they renew now!

Did I say I procrastinate too much? (Goes off and orders a Ps5!)

 

[Richie]

I wonder what it would feel like to have 900 a month extra?
It would help but it probably wouldn't change as much as it sounds in reality

Given your level of disposable income, I would tend to agree. However, for someone on a lot less income, it would likely be a considerable improvement. An extra £900 in my hand every month? What fun I would have.

 

[slinxy]

I'm on the cusp of accepting a 5 year mortgage with HSBC on 4.04% and paying the ERC charge of 1.1k (which pains me, as that's a new Ps5 and some games) to switch from a 2 year deal on 5.84%. Right now, this will save us about £66 per month that if I overpay for 5 years, will shave about 6k off the mortgage when we renew. Right now, this sounds like a no brainier.

BUT... are we on the cusp of a crash worse than the banking crisis? Debt is massive, our UK debt (and US) is massive and high interest payments just compound this. Interest rates are high because of inflation but high interest rates can cripple an economy if the debt payments are so high, which they are!

Employment is high (from what I can see) so now should be the time where we are making good progress to reduce our debts but according to the ONS, our debt is just going further up! High interest rates stagnate companies, people lose their jobs and rely on government handouts, people pay less tax and that debt is going to go up even faster!

If we are back to pre banking crisis then 4% is a good rate and I should snap their hand off to accept it! But the banks only offer this because they believe the rates are coming down, potentially below 4%.

My girlfriend is money savvy in the sense she has no debt but talking to her about this stuff just gets her ready to slap me.

I'm not financially educated in the slightest but research and learn myself and I just feel like I'm seeing a good rate right before something massive kicks off!

Did I say I procrastinate too much? (Goes off an orders a Ps5!)

The PS5 and games will be worth very little in 5 years time... how much is the experince in playing with it worth?

Don't concern yourself with the US, unless you have invested in the US stock market and even then there's very little you can do about macroeconomics, you just have to ride the wave.

Employment is an iffy area at the moment. A family member who does the accounting for companies says that the companies who took on staff after covid are beginning to shed staff.. the employment levels are raising by a little but the number of job vacancies in the uk are dropping by a larger number. The union at work has agreed at least a 5% payraise for the lower grade staff, the mid-tier staff has been promised at least a £800 pound raise, which isn't even 1% for some members in that bracket. I'm hoping for a 4% raise, the whole of the uk is predicted to have a 4.4% raise.. this doesn't keep up with the cost of living and people get given less than that; they may be more movement in the job market.
All UK banks have been going on a cost cutting exercise, some banks are predicting that BoE interest rates will be lowered sooner than expected (2027), hence the lower mortage rates are going down. Personally I don't see the BoE dropping rates next time round, maybe towards the end of the year. UK banks now hold more cash in reserve since the last banking crises, so they are in a better position if it does occur. Also during the last banking crises, interest rates was lowered not increased hence why we have had the low rates that we have been experincing.
The normal rates are between 4-5%, they was lowered and never put back up until now.. government rates affect banks more than anything else as that's the rate they charge each other, and companies tend to borrow at. If companies can't borrow money; they can't invest and grow, they can't buy or merge with other companys and banks can't take their cut for underwritting the buy out or merger.

The simple question is; do you think the rates will drop further? if so; you are switching to early... it may be worth working out the figures if you kept your current rate for a year with over payments. Then switch in a years time at rates of 4 or 3.5%.. or even keep it for two years and switch with the same rates.. you will be saving on the ERC. Don't forget there's an election this year or next, even without a change of governement. I don't think think tax and interest rates; even thou BoE interest rates are meant to be independent will remain the same.

 

[413x]

Given your level of disposable income, I would tend to agree. However, for someone on a lot less income, it would likely be a considerable improvement. An extra £900 in my hand every month? What fun I would have.

900 would be household.
It would be more like 550 for me. It's a lot for sure. But it's not life changing. But then a mortgage shouldn't be if the bank has leant responsibly.

It will probably feel much less due to inflation at the time too

 

[Nemiyen]

I was only really jesting about the Ps5 but I see costs in items rather than cash! The company I work for has already given out the pay rises for this year (unless people kick off, I'm not sure yet) and ours was 3%. Better than nothing but still less than what inflation is at.