Mortgage Rate Rises

HangTime · 4 Mar 2024 at 16:42

Dirk Diggler said:
Correct me if I'm wrong, but the fact that only one of those interest rates is guaranteed for 5 years is significant. That's because the savings interest could plummet back to 0.25% after say 2 years, then I'm not only stuck with money making nothing, but I'm unable to drop it all into my mortgage due to ERC, plus I'll have lost the first 2 years reduction in the mortgage balance.

Yes, it depends on how easy it is to pump money in to the mortgage without ERC relative to how much savings you have and any withdrawal restrictions. In my case I had no ERC and instant access to the savings so if rates turned against me I could pay off the mortgage the next day.

Keep in mind it's unlikely the MPC wakes up on a Thursday and says "right boys lets knock 4% off the base rate", you can usually sense it coming and it's invariably a gradual fall rather than sudden fall, giving you a bit of time to react.
It also works both ways - if interest rates go up, and you had been paying off the mortgage instead of saving, that's "dead money" that you can't then put in savings to achieve the higher savings rates as you missed the opportunity. Having money in savings keeps you in control, i.e. high savings and high debt is more flexible than low savings and low debt.

Key info we need is what your ERC are and how much overpayments you can make without incurring them. Sometimes they are tapered so the ERC is actually not that big towards the end of the fixed period.

volt9291 · 4 Mar 2024 at 17:04

tamzzy said:
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

mortgage overpayment vs savings calculator

as @Mercenary Keyboard Warrior says, whichever is higher % wins

@Guest2 i'm also in the same boat and rather than overpaying, this is what i'm doing:
1) put money into regular savings account (higher % rate) up to my personal saving allowance https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/
2) rest goes into a ISA, rates are much lower than last summer though, i fixed at 5.45% for 2 years, YMMV nowadays https://www.moneysavingexpert.com/savings/best-cash-isa/

if the interest rates plummet, you can withdraw and then overpay as a lump sum?
i thought you can overpay 10% without charge...unless you're saving that much that you'd go over that 10%?

Am I missing something... looking at the first link you put (MSE regular savings accounts) they all limit what you can pay in, therefore that limits how good they are.

So looking at the Skipton savings account, it has 7% interest, a maximum of £250 a month. Do that for 12 months you have paid in £3,000, to make £113 interest in the year (about £9.40 a month), and then you get taxed on that. Hardley seems worth the effort?

tamzzy · 4 Mar 2024 at 17:17

volt9291 said:
Am I missing something... looking at the first link you put (MSE regular savings accounts) they all limit what you can pay in, therefore that limits how good they are.

So looking at the Skipton savings account, it has 7% interest, a maximum of £250 a month. Do that for 12 months you have paid in £3,000, to make £113 interest in the year (about £9.40 a month), and then you get taxed on that. Hardley seems worth the effort?

you're allowed more than one

personally, i've got first direct (7% £300/mth), nationwide (8% £250/mth), coventry BS (7% £250/mth) and natwest (6.17% £150/mth) regular savers - £950/mth goes into these
and i also have the 5.12% barclays blue rainyday saver account for any overflow
the combination of all the above maxes my £500 PSA allowance for the year and any more savings that i make go into my ISA (or premium bonds lol)
when the regular savers matures...the sum goes into my ISA and I start the process again

ivrytwr3 · 4 Mar 2024 at 17:25

Dirk Diggler said:
How did you end up on such a high rate with what must be really low LTV?

Our fix ended so onto SVR, then .25% increases every almost every month.

Dirk Diggler · 4 Mar 2024 at 17:34

tamzzy said:
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

mortgage overpayment vs savings calculator

as @Mercenary Keyboard Warrior says, whichever is higher % wins

@Guest2 i'm also in the same boat and rather than overpaying, this is what i'm doing:
1) put money into regular savings account (higher % rate) up to my personal saving allowance https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/
2) rest goes into a ISA, rates are much lower than last summer though, i fixed at 5.45% for 2 years, YMMV nowadays https://www.moneysavingexpert.com/savings/best-cash-isa/

if the interest rates plummet, you can withdraw and then overpay as a lump sum?
i thought you can overpay 10% without charge...unless you're saving that much that you'd go over that 10%?

Yes, any more than 1 year's savings would exceed the maximum allowable over payment amount (10% of the balance). That's why I'm saying, it's not just a case of biggest number is best.

tamzzy · 4 Mar 2024 at 17:40

@Dirk Diggler it isn't a one-size-fits-all but in general the bigger number is better...however everyone's personal circumstances are different so must be taken into account

Dirk Diggler · 4 Mar 2024 at 17:45

tamzzy said:
@Dirk Diggler it isn't a one-size-fits-all but in general the bigger number is better...however everyone's personal circumstances are different so must be taken into account

Yes, agreed... And thanks for the MSE link as I need to go over all this with the wife later and that's a brilliant illustration to follow.

danlightbulb · 4 Mar 2024 at 17:52

tamzzy said:
you're allowed more than one

personally, i've got first direct (7% £300/mth), nationwide (8% £250/mth), coventry BS (7% £250/mth) and natwest (6.17% £150/mth) regular savers - £950/mth goes into these
and i also have the 5.12% barclays blue rainyday saver account for any overflow
the combination of all the above maxes my £500 PSA allowance for the year and any more savings that i make go into my ISA (or premium bonds lol)
when the regular savers matures...the sum goes into my ISA and I start the process again

That's an average rate of around 3.5% for say £1000 per month or £12k total, so around £420 per year interest.

You could buy a 1 year government bond and get a fixed guaranteed return of around 5% with the entire £12k in one go and forgetting all that hassle. Money locked up for a year of course.

I've started to be interested in government bonds since researching them for my pensions thread.

(Not bond funds btw, but actual direct fixed income bonds which apparently can be bought direct from the government).

tamzzy · 4 Mar 2024 at 17:59

danlightbulb said:
entire £12k in one go

my entire savings are in ISA/LISA (mixed between S+S ISA/cash ISA and S+S LISA) +/- premium bonds

the £950 drip feed is from my monthly salary...which at its maturity, will turn into the deposit for the above ISAs/LISA to max out the yearly allowance

SaBBz · 4 Mar 2024 at 17:59

danlightbulb said:
That's an average rate of around 3.5% for say £1000 per month or £12k total, so around £420 per year interest.

You could buy a 1 year government bond and get a fixed guaranteed return of around 5% with the entire £12k in one go and forgetting all that hassle. Money locked up for a year of course.

I've started to be interested in government bonds since researching them for my pensions thread.

(Not bond funds btw, but actual direct fixed income bonds which apparently can be bought direct from the government).

To be fair it isn’t much hassle, as you just set up standing orders once you’ve opened the accounts and that’s it done for the year.

tamzzy · 4 Mar 2024 at 18:00

SaBBz said:
To be fair it isn’t much hassle, as you just set up standing orders once you’ve opened the accounts and that’s it done for the year.

exactly this lol

danlightbulb · 4 Mar 2024 at 18:42

SaBBz said:
To be fair it isn’t much hassle, as you just set up standing orders once you’ve opened the accounts and that’s it done for the year.

Sure, but you could get more return elsewhere though. If it's not worth it then fair enough.

tamzzy · 4 Mar 2024 at 18:46

danlightbulb said:
Sure, but you could get more return elsewhere

you wouldn't really, would you? you can't compare having £12k from the outset vs dripping in £1k/mth into savings. they're not apples-to-apples comparison.

danlightbulb · 4 Mar 2024 at 18:48

tamzzy said:
you wouldn't really, would you? you can't compare having £12k from the outset vs dripping in £1k/mth into savings. they're not apples-to-apples comparison.

You could invest your monthly £1k into 1 year bonds and get 5%. Then pay into your ISA when they mature. Just 12x per year on a rolling basis instead of one lump.

tamzzy · 4 Mar 2024 at 18:53

danlightbulb said:
You could invest your monthly £1k into 1 year bonds and get 5%. Then pay into your ISA when they mature.

regular savings doesn't really work like that though.

compare a fixed time and taking your example, having 12k from the outset
your saving = £12k @ 5% gov bond for 1 year
my saving = £12k @ 5.05% easy access, being drip-fed into regular savings for 1 year

yours = £600 interest
mine = (£12k x 2.5%) + (£12k x 3.5%) = £300+£420 = £720

200sols · 4 Mar 2024 at 18:54

tamzzy said:
regular savings doesn't really work like that though.

compare a fixed time and taking your example, having 12k from the outset
your saving = £12k @ 5% gov bond for 1 year
my saving = £12k @ 5.05% easy access, being drip-fed into regular savings for 1 year

yours = £600 interest
mine = (£12k x 2.5%) + (£12k x 3.5%) = £300+£420 = £720

Gilts are tax efficient though with low coupons.

Higher taxpayers are much better off with the gilts.

danlightbulb · 4 Mar 2024 at 18:55

tamzzy said:
my saving = £12k @ 5.05% easy access, being drip-fed into regular savings for 1 year

You're not getting 5% you're getting 3.5% ish on average?

tamzzy · 4 Mar 2024 at 18:59

danlightbulb said:
You're not getting 5% you're getting 3.5% ish on average?

which is my point exactly. you cannot compare a bond of £12k which you have on hand vs drip-fed savings

if you want to compare a £12k savings right off the bat:

tamzzy said:
compare a fixed time and taking your example, having 12k from the outset
your saving = £12k @ 5% gov bond for 1 year
my saving = £12k @ 5.05% easy access, being drip-fed into regular savings for 1 year

yours = £600 interest
mine = (£12k x 2.5%) + (£12k x 3.5%) = £300+£420 = £720

danlightbulb said:
You could invest your monthly £1k into 1 year bonds and get 5%.

again this is not apples to apples
as drip fed bonds...your 2nd £1k will only be available in month 13...month 12's £1k won't be available until month 25!

danlightbulb · 4 Mar 2024 at 19:03

tamzzy said:
which is my point exactly. you cannot compare a bond of £12k which you have on hand vs drip-fed savings

if you want to compare a £12k savings right off the bat:

again this is not apples to apples
as drip fed bonds...your 2nd £1k will only be available in month 13...month 12's £1k won't be available until month 25!

I'm not following and don't want to derail thread too much.

tamzzy · 4 Mar 2024 at 19:15

danlightbulb said:
I'm not following and don't want to derail thread too much.

don't think it's derailing as technically it's about rates lol

basically for an apples-to-apples comparison...you have to fix two variables, (1) the amount you save/have, (2) the time you are saving it by, the third variable is the interest rate (interest return)

you're mixing it up as for your £12k bond, you had this money on day 1 for the whole year
for my regular saver accounts, i never had this £12k at day 1, i had £1k at month 1, £2K at month 2 and so on. the only time i ever had £12k is at month 12 (hence why the interest rate is half of the advertised rate, as you correctly pointed out)

danlightbulb said:
You could invest your monthly £1k into 1 year bonds and get 5%.

the reason why you then again cannot compare apples-to-apples is this:

tamzzy said:
as drip fed bonds...your 2nd £1k will only be available in month 13...month 12's £1k won't be available until month 25!

the time limit variable is not equal between any of the comparisons

to compare yours apples to apples with mine...we have to fix (1) the principal (amount of cash) in this case, £12k...and also (2) the time limit 1 year (so your bond matures at 0001 on day 366, and so does my regular savers)
so if we fix (1) as 12k and (2) as 1 year and maturity at 1 year and 1 day...we have:

tamzzy said:
your saving = £12k @ 5% gov bond for 1 year
my saving = £12k @ 5.05% easy access, being drip-fed into regular savings for 1 year

yours = £600 interest
mine = (£12k x 2.5%) + (£12k x 3.5%) = £300+£420 = £720

hope this makes more sense and able to follow