Mortgage Rate Rises

[kinger8938]

If you have 154k to go on the outstanding balance and your house is worth 270k, then your loan to value (LTV) when you remortgage will already be under 60%. i.e. You own more than 40% of it already (equity). The best remortgage deals (or rates) tend to be for people who reach under 60% LTV. No overpayments you make now will therefore affect the rates you get offered when it is time to remortgage, but obviously paying off more ahead of any remortgage is good to minimize how much more you will pay in the new higher interest rate when you remortgage. As @dlockers said, currently because you are on a low interest rate on the mortgage, it would be better to place any overpayments you were considering into a high interest savings account, then just before you remortgage, take it out and do a lump sum overpayment.

Thanks all! Great response and has cleared this up a lot for me, much appreciated.

Yeah the LTV thing is why I was wondering if it's even worth worrying about. I think with that in mind the savings path is best then it's still available to me if overpaying isn't essential and an emergency pops up elsewhere etc.

Was a new build, £189,000 when we bought in 2014. This year marks 10 years and our neighbour sold almost instantly for £280-300k a year back. Exactly same house just the opposite hand (semi detached)

Ideally we would live to move, but on our current rate we may aswell wait. My partner is semi between jobs now too. So hopefully by the time remortgage time is a thing, she will be bringing in a bit more and we can look at moving.. maybe!

 

[jaybee]

Did tracker rates not used to be less than fixed in the past? I might need a slap with a wet kipper...it is Monday morning.

 

[dlockers]

Did tracker rates not used to be less than fixed in the past? I might need a slap with a wet kipper...it is Monday morning.

It is just a risk play. At the moment rates are likely to come down so fixed is pricing in a "discount". Historically rates could only go up, so fixed was pricing in a premium for mitigating the risk of a rise.

 

[jaybee]

I notice on HSBC's website for example on their rate comparison chart, they have the LTV milestones set as below:

60% = best rates
70% = get slightly worse
75% = published but no different to 70
80% = get slightly worse
85% = published but no different to 80
90% = get slightly worse
95% = get slightly worse

* apart from max loan amount which does change on each milestone
** above uses current HSBC fixed rates only

So if you are at just under 75, you then won't get any better rates until you jump another 15% in LTV. Is there anywhere that gives better rates for hitting under 70, or do they all follow the above generally?

 

[dirtychinchilla]

We've started overpaying our mortgage today. It's at about £290k with 32 years left at 4.52%. We're putting in an extra £200 per month, which should bring the end of it 7 years closer!

I know we could get 5% in a savings account, but for £167 over the year makes so little difference.

 

[dlockers]

£167 over the year makes so little difference.

I'll DM you my deets to ping it over <3

 

[tamzzy]

We're putting in an extra £200 per month

but for £167 over the year makes so little difference.

that's nearly 13 months of overpayment every 12 months

 

[dirtychinchilla]

It is, but if you put it in a calculator then you basically gain nothing over 7 years

 

[HungryHippos]

I don't think I'd bother with maxing savings vs mortgage overpayment when the difference is 4.57% to 5% ish tbh, whilst yes it's better, it does add some extra work

In my case though, mortgage is 1%, and savings is 5%, this is a no-brainer and is potentially a lot more than £167, so I am maxing the savings.

But as we discussed many times, savings can be a lot more flexible in how you deploy them, mortgage overpayment you can't get back easily and use for anything else.

 

[b0rn2sk8]

32 years, ‘eek’, at least the balance is t too high.

Technically the correct answer is to maximise the best interest rates you can get on either saving or finance. As soon as the highest APR you are paying drops below the savings APR (after tax where applicable), you could switch to savings.

Personally, we save and pay down the mortgage. The temptation to spend the savings when they mature on something other than the mortgage (which is tomorrow’s problem) is high. Paying it off right away guarantees it’s actually paid down early.

If the difference was small, I wouldn’t bother with the savings part either.

 

[dlockers]

I don't think I'd bother with maxing savings vs mortgage overpayment when the difference is 4.57% to 5% ish tbh, whilst yes it's better, it does add some extra work

In my case though, mortgage is 1%, and savings is 5%, this is a no-brainer and is potentially a lot more than £167, so I am maxing the savings.

But as we discussed many times, savings can be a lot more flexible in how you deploy them, mortgage overpayment you can't get back easily and use for anything else.

There is the "safety" net of savings being accessible should something go really wrong.

 

[dirtychinchilla]

32 years, ‘eek’, at least the balance is t too high.

Technically the correct answer is to maximise the best interest rates you can get on either saving or finance. As soon as the highest APR you are paying drops below the savings APR (after tax where applicable), you could switch to savings.

Personally, we save and pay down the mortgage. The temptation to spend the savings when they mature on something other than the mortgage (which is tomorrow’s problem) is high. Paying it off right away guarantees it’s actually paid down early.

If the difference was small, I wouldn’t bother with the savings part either.

That's one of my reasons for just paying it straight off - we won't spend it.

We've got other savings for a safety net.

 

[HangTime]

Did tracker rates not used to be less than fixed in the past? I might need a slap with a wet kipper...it is Monday morning.

Yes, but it's all based on what the lender thinks will happen with interest rates during the course of the term (which in turn is likely to be based on what the money markets think).

Basically, you pay a premium for a fixed rate if they expect rates to go up. If they expect rates to come down, then you pay a premium for a tracker (incidentally, this is also why you occasionally get fixed rates that are lower even than base rate, because the expectation is that borrowing will get a lot cheaper in future).

If you time it right in terms of predicting the direction of rates and grabbing products before they are removed/adjusted, trackers can be a great deal. I took out a zero fee +0.59% lifetime tracker about 16 years ago (I feel old writing that out!), rates then fell by about 5% and paid off the mortgage before rates rose again.

 

[HungryHippos]

Yes, I'd do both in this case if you can. Some overpayment, some into savings at a good rate. Regular savers make a much bigger difference here technically.

My Nationwide account is 8% interest, which beats everything else, so I put £200/month there first before I do anything.

Length of mortgage doesn't really matter if you're able to overpay it quicker, I like longer term as it gives more flex, and if you ever lost your job you pay less until you get back on your feet.

 

[dlockers]

We've got other savings for a safety net.

Pay the mortgage with that and then start saving again

#yolo

edit: but like a really lame, square shoe/pocket protector type yolo

 

[Foghorn Leghorn]

That's one of my reasons for just paying it straight off - we won't spend it.

We've got other savings for a safety net.

A friend overpays his mortgage knowing he'd be better off financially putting it into a savings account, as soon as the value in the savings account got anywhere near 'holiday in the sun' levels his wife would be bending his ear to spend it.

 

[Mercenary Keyboard Warrior]

Yes, but it's all based on what the lender thinks will happen with interest rates during the course of the term (which in turn is likely to be based on what the money markets think).

Basically, you pay a premium for a fixed rate if they expect rates to go up. If they expect rates to come down, then you pay a premium for a tracker (incidentally, this is also why you occasionally get fixed rates that are lower even than base rate, because the expectation is that borrowing will get a lot cheaper in future).

If you time it right in terms of predicting the direction of rates and grabbing products before they are removed/adjusted, trackers can be a great deal. I took out a zero fee +0.59% lifetime tracker about 16 years ago (I feel old writing that out!), rates then fell by about 5% and paid off the mortgage before rates rose again.

Plus of course the uncertainty factor when you start talking 5 year and above fixes.
Its why historically longer fixes have higher rates (and higher ERC) because the impact could be significant over a longer window.

 

[dlockers]

A friend overpays his mortgage knowing he'd be better off financially putting it into a savings account, as soon as the value in the savings account got anywhere near 'holiday in the sun' levels his wife would be bending his ear to spend it.

Pics of wife on holiday so I can do the maths?

 

[dirtychinchilla]

A friend overpays his mortgage knowing he'd be better off financially putting it into a savings account, as soon as the value in the savings account got anywhere near 'holiday in the sun' levels his wife would be bending his ear to spend it.

I'm just as bad to be fair. Saving is not something I've historically been good at

 

[Simon]

We've started overpaying our mortgage today. It's at about £290k with 32 years left at 4.52%. We're putting in an extra £200 per month, which should bring the end of it 7 years closer!

I know we could get 5% in a savings account, but for £167 over the year makes so little difference.

You’ll be taxed on savings too