Fixed rate with annual interest v BOE tracker with daily interest

GemmaC

Hi,

I'm in a dilemma. We are remortgaging £208,000 with equates to 80% LTV. I organised a fixed 3-year rate with Leeds BS a couple of months ago at 6.24% over 28 years. We have a healthy monthly income at present so are planning to overpay by £1000 a month unless something comes up. All has gone smoothly and we're due to complete on 2nd Sept.

But since some of the rates seem to have fallen lately I have been starting to wonder if we've done the right thing for our situation. I am wary of the fact that the Leeds mortgage is calculated annually. As we are planning to overpay so much money each month I wonder if it would be better off in a daily-calculated plan. I should also add the Leeds deal comes with a £999 product fee and £250 legal fees, plus £200 valuation.

Yesterday I happened to notice the HSBC tracker at 0.79% above BOE rate with £599 fee. This looks very appealing as at the current rate, it would mean our payments are about £70 cheaper a month. No fees other than that and the usual £35 completion fee for transfering the money. The BOE rate would have to rise by 0.5% to equate to what we'll be paying with the Leeds. Also it calculates interest daily so I'm assuming that if we make a big overpayment, the next standard payment we make should be slightly lower because we've brought the original loan down slightly? The Leeds tell me when you overpay, although the interest takes until the end of their 'year' to show on your statement, they do take into account when you have overpayed and recalculate each one from there. I still don't understand this though and whether it will harm us more.

I called the Leeds and we can still get out of the deal as we've not started completion but we lose our legal and valuation fee. But this still works out a better deal as the tracker is currently much lower.

I am really impressed with how efficient the Leeds have been so far - especially as they all seem to be based in the same office! So I am wary of applying for a HSBC mortgage and seeing it drag on for ages and us being stuck on a 7% (or more even?) SVR with Intelligent Finance, which already equates to an extra £222 a month on our mortgage.

Obviously this is a standard dilemma - tracker/fixed - and we don't know what the rates are going to do. I'm aware we could get out of the HSBC one at any point and fix elsewhere but I'm wary of the fact we currently have a high LTV (although once we start overpaying this should really make a huge difference), and will we be able to find a fixed rate as low as 6.24% again? I originally fixed with Leeds for 3 years as I thought rates seemed like they were going to go sky-high but now they seem to be dropping again slightly?

(I should add that we're not planning to move for the next 3 years - perhaps in 3 years' time.)

Also how long does a remortgage tend to drag on for? We've been really lucky with Leeds in how smooth it went. Obviously Iknow the actual transfer of funds is down to your own current lender and if they're slow, there's not a lot you can do but chase them.

Thanks for your help,

Gemma

Locoblade

If a 3 year fix is what you're after and you want to overpay etc, have you looked at the First Direct offset fixed mortgage at 5.95%? Their LTV is 80% too so as long as the valuation comes in what you expect then you stand a decent chance of being accepted. Because its offset it also means the day your wages go into your account they start counting against the mortgage interest, so no real need to actually transfer your £1k a month overpayment anywhere.

BTW, I only mention this because Im in a similar situation as yourself (£175k with 75-80% LTV) and am seriously considering the above despite not having as much to over-spend as you, Im not a financial advisor by any means though

herbiesjp

HI Gemma

If you are on a mortgage deal that charges annual interest, there is no point in you making monthly overpayments.

Find out from Leeds when the end of the year is in terms of their interest calculation, and then make your overpayments just before this date. Otherwise your money is sitting on their account, not earning you any interest, but also not reducing your mortgage balance and mortgage payments.

There are similar deals out there, with daily interest, that offer overpayment facilities along with free legal fees and free valuations

GemmaC

Thanks for both your replies. I looked into First Direct but they won't lend us enough, based on our wages so it's not an option.

Interestingly, I have spoken to Leeds and although they calculate interest annually, if you make lump sum overpayments of £1000 or more they will recalculate your interest instantly and also reduce your monthly payment accordingly, if that is what you want to do. So I am not so bothered now about the daily/annual interest issue. My dilemma is still whether to go for the tracker, which currently is cheaper monthly by about £70 and with less set-up fees, or whether to stick with the fix for 3 years.

It is appealing to go on the HSBC tracker as we can get out anytime free of charge and then perhaps assess whether the fixed rates are better value next year.

Sooler

I'd only bother with the fixed rate if I really needed to have fixed outgoings. I'd keep it simple and have the tracker - so interest rates go up and down, that's the way it is.

I wouldn't go for a fixed rate just as a gamble that it would save any money over the term. You borrow the money, you pay the rate, with sensible borrowing rises in interest rates aren't really an issue.



I am not a mortgage advisor.

Sooler

GemmaC wrote: »

I am really impressed with how efficient the Leeds have been so far - especially as they all seem to be based in the same office!

They probably haven't got much work on at the moment.

martinman3

GemmaC wrote: »

Hi,

I'm in a dilemma. We are remortgaging £208,000 with equates to 80% LTV. I organised a fixed 3-year rate with Leeds BS a couple of months ago at 6.24% over 28 years. We have a healthy monthly income at present so are planning to overpay by £1000 a month unless something comes up. All has gone smoothly and we're due to complete on 2nd Sept.

But since some of the rates seem to have fallen lately I have been starting to wonder if we've done the right thing for our situation. I am wary of the fact that the Leeds mortgage is calculated annually. As we are planning to overpay so much money each month I wonder if it would be better off in a daily-calculated plan. I should also add the Leeds deal comes with a £999 product fee and £250 legal fees, plus £200 valuation.

Yesterday I happened to notice the HSBC tracker at 0.79% above BOE rate with £599 fee. This looks very appealing as at the current rate, it would mean our payments are about £70 cheaper a month. No fees other than that and the usual £35 completion fee for transfering the money. The BOE rate would have to rise by 0.5% to equate to what we'll be paying with the Leeds. Also it calculates interest daily so I'm assuming that if we make a big overpayment, the next standard payment we make should be slightly lower because we've brought the original loan down slightly? The Leeds tell me when you overpay, although the interest takes until the end of their 'year' to show on your statement, they do take into account when you have overpayed and recalculate each one from there. I still don't understand this though and whether it will harm us more.

In your original thread a couple of months back

GemmaC wrote: »

I've found a deal with Leeds BS for 5.9% but I need to be quick if I want it - they are apparently changing all their rates on Thursday. There are some of conditions:

£999 product fee
£200 valuation
Must take house & contents policy with Norwich Union or 0.24% is applied to the rate

the rate on the 3yr fixed rate from Leeds BS was 5.9% + 0.24% if you don't use Norwich Union for insurance. Surely it doesn't really matter to you who provides your insurance it you can avoid paying the 0.24%.