Mortgage Advice Please....

Hardeman

Hello everyone!!

We owe 40k on our exisiting mortgage - due to be paid off in about 7 years as we currently overpay..

We need an extension/loft conversion as we have 3 children and quite a small but lovely house. Its going to cost us about 50k to do the building work we need.

Just had an offer from bank to borrow the 40k and 50k in a remortgage - fixed term 6.1 = 2years or 5 years term and extendedthe term to 18 years so our repayments will be manageable....600 quid arrangement fee....

how do we weigh up whether to do 5years or two - after this loan and building work it is unlikely we will move or need to borrow any more...

any advice will be helpful!!:o

thanks

H

lisyloo

Advantages of 2 year deals over 5 years:

If there is a great rate around you can switch to it in 2 years time.

Disadvantages:

You have to pay fees again.
You could be "in between" jobs.
Rates could be high when you come to remortgage.

Personally I would go for something longer term.
As it' "only" 90K have you thought about a lifetime tracker (obviously I don't know how much risk you are putting yourself at with 90K but in the scheme of things this isn't a large mortgage).

Hardeman

hi lisylo - and thanks for replying

whats a lifetime tracker?

the repayments take us up to our upper limit of what we can afford to pay - thats why we sort of thought a fixed rate would suit us best - the youngest child will start school in two years - therefore - more money can be earned by me at that stage...

perhaps we need to look at tracker ones....

lisyloo

whats a lifetime tracker?

Lifetime means it will carry on for the whole term (so no fees).
Tracker usually means it tracks the BOE rate (some deals tracks a lenders own rate and not BOE rate but they should be called discount and not tracker.
So the rate is varaible and not fixed.

the repayments take us up to our up[per limit of what we can afford to pay

You are right that this implies a fixed would be best.

Hardeman

thanks again.... whats your thoughts regarding 2 years or 5 years..?? H x

mshaw77

Hi,

This very much depends on your preference, I think the main challenge at the moment is nobody has got a crystal ball! The rates are extremely high t the moment and I must admit I am advising my clients not to fix for too long on todays rates, as they could end up regreting it when the fixed rates start coming back down and the credit crunch sorts itself out. Yes you could end up paying more fees, but these should be taken into account each time you remortgage, don't just assume that an attractive rate with a big set up fee will automatically save you money! Because your mortgage is relatively small it is not worth paying the high fees to get a decent rate, as any saving on the rate will be offset by the fee.

Hardeman wrote: »

thanks again.... whats your thoughts regarding 2 years or 5 years..?? H x

minimike2

Easyfinance.....you are not allowed to promote your services on this fourm. You should also add a signiture to show you are an adviser. There is a sticky on the code of conduct for posting for brokers. Please follow it.

Tiddler_2

mshaw77 wrote: »

Hi,

The rates are extremely high t the moment....

Hmm!! Yes they are high by the levels of the last 5 years but if you go back prior to that I'd probably say they are at an average level at the moment, not EXTREMELY HIGH.

Based on a 90K mortgage if rates were 1% lower in 2 years time you'd save a max of £900 per year in interest rates, but it may cost you £1000 plus in fees, plus any mortgage exit fees, so the first year and 4mths's saving is gone on fees. Personally, and it is only a personal opinion, I would look at a longer fixed rate (its a gamble either way) How many people who have deals coming to an end now wish they had taken a 5 year fixed rate? If funds are tight, I wouldn't gamble on interest rates being lower in 2 years time.