Remortgage conundrum....

tomstickland

I've done a spreadsheet to compare the two main mortgage options available to me.

1- low fees, switch to a 6.55% fix with existing lender
2- gather up a load of savings, reduce the mortgage down from £73K to £66K to qualify for a 5.99% rate, fixed for 5 years.

My analysis shows that option 2 will save me £2.5K over the 5 years. ie: at the end I'll have £2.5K more in my possession. So I can use that to knock another £2.5K off the mortgage. The analysis is thorough and includes the interest from the savings, interest earnt on any monthly savings due to the lower rate, the total amount owed at the end of the fix etc.

I always said that when mortgage rates went above the saving rates then I'd pay a load of mortgage off. Now the time has come however....

EssexHebridean

Hi Tom - how long would the fix be with option 1? I only ask as now might not be the best of times to fix for 5 years......

How about going for option one but use some of your savings to reduce the balance a little from the start, then set regular monthly overpayments to knock the term down still more and save yourself some interest?

I assume you are already using your ISA entitlement?

tomstickland

I was working on the principle that a 5 year fix would allow me to have some certainty through the recession/whatever and possible negative equity.

Do you think that rates might improve in the next few years?

dimbo61

" possible negative equity "
A 5 year fix at 5.99% is not a bad deal and you have the time to reduce your
debt and therefore build up the equity in your home.
If rates improve in the next five years you might be paying a slightly higher
rate but you need to take into account remortgage costs.
I have a 5 year fix and overpay to reduce my debt and work at getting rid of my mortgage GOOD LUCK

tomstickland

Well, I've got for a 3 year fix and I'm paying off a lump sum to get the LTV down to 75%.

oilrag

its not a bad deal tom. I work with a panel of lenders and considering the low fees factor 5.9-6% is about right for you for now. Theres been talk of a settle down in rates in a few years time but of course its just talk for now so from a risk point of view its not a bad stratergy.

EssexHebridean

Three seems more sensible than five to me I have to say. Had you been doing this a year ago I suspect a five year fix would without question have been the way to go, but too much looks likely to change in the next couple of years to be so sure of it now.

stevie_wonder

tomstickland wrote: »

2- gather up a load of savings, reduce the mortgage down from £73K to £66K to qualify for a 5.99% rate, fixed for 5 years.

Is this rate based on a certain LTV? I only ask cause if you are basing the LTV on your own valuation you may be in for a shock. Surveyors are putting low valuations on all houses to cover their asses, and building in potential for further drops in value. Chances are if you think your house is worth £100k, it will get valued at £90k or possibly lower.

In a nutshell, the value the surveyor deems will likely be lower than your own, and therefore the LTV higher (and maybe the 5.99% rate is out of reach).

tomstickland

Yes, in the end I decided that I didn't want to risk an even lower valuation, so I binned the idea and took a fix at the current LTV, as estimated by my existing lender.

I did countless "what ifs" based on low valuations and the value of my garage (not included in original valuation) and decided that I didn't want to take the risk.