2 mortgage deals - can't decide??

getmore4less

tomstickland wrote: »

I spent 3 days trying to make up my mind about mortgage options. It involved loads of spread sheets and messing about until I convinced myself.

I was looking at a smaller mortgage than this, but I did find that lower rates generally made the mortgage more effective, even with quite high arrangement fees. The fees are pretty low on that fix and the rate is good by todays standards.
So I'd be more attracted by the fix.

Find out whether you can pay the fee upfront rather than adding it to the mortgage. If it is added then find out at what rate - quite a few sneaky lenders will charge the full SVR on the fees.

With time limited loans you have to do the measuremnets over the short term and as I have shown the fees make a significant difference (even small ones like these) on smallish loans (<£100k).

If you pay fees up front you have to compare the no fee options by borrowing less.

_Andy_

Loobysaver wrote: »

It's £145K

If you're thinking of a tracker then have a look at HSBC - base rate + 0.99 = 5.99%, no fees, no penalties at all.

getmore4less

Ian_Griffiths_Halifax wrote: »

Do you want security or insecurity?

3 years is not a long time and you still have the risks beyond that, if rates do go up the fixed rate only buys you a limited time. Better to have plan that gives longer term security.

Better long term securty of affordable payments would be obtained by making sure the fall back of interest only is available or used from the outset.

Combined this with a longer term(25Y) and self managed overpayments would give the maximum flexability to ride out interets rate rises but also helps with any income issue or other calls on funds, so a much better way then a 3year fix.

If you mitigate the payment issue with better longer term options, then the fix becomes a call on interest rates and they have to rise a fair bit to cover the fees in this case.

Gorgeous_George

tomstickland wrote: »

Find out whether you can pay the fee upfront rather than adding it to the mortgage. If it is added then find out at what rate - quite a few sneaky lenders will charge the full SVR on the fees.

If you pay the fees upfront then it is only fair to remove £549 from the Option 2 mortgage to get a true comparison.

Option 1 - Borrow £47,000 pay £549 in fees

Option 2 - Borrow £46,451 with no fees


GG

Ian_Griffiths_Halifax

getmore4less wrote: »

3 years is not a long time and you still have the risks beyond that, if rates do go up the fixed rate only buys you a limited time. Better to have plan that gives longer term security.

3 years security is better than none, and I agree that it's not really long enough, but 25 years is too long. Especially whey she only has 17 years left now!

There is too much that can happen in somebodies life to tie them in to a 25 year deal with a lender unless there are no penalties.

A 25 year deal would only be suitable to a minority of people.

Gorgeous_George

I think three years is pointless.

Yes, it earns more commission for brokers so I understand why they get recommended - but three years passes so quickly. You will soon be going through the stress of remortgaging yet again.

As recession kicks in, I think interest rates will fall in the short term so fixing now is not a good idea unless you cannot take any risk at all.

Fix for ten years if available or five at a push but three years, I wouldn't bother.

GG

getmore4less

Ian_Griffiths_Halifax wrote: »

3 years security is better than none, and I agree that it's not really long enough, but 25 years is too long. Especially whey she only has 17 years left now!

There is too much that can happen in some bodies life to tie them in to a 25 year deal with a lender unless there are no penalties.

A 25 year deal would only be suitable to a minority of people.

I did not say get a 25year tie in, what I said was 25year term with interest only and self managed payments which is very different.

If the security required is to be able to afford the payments(which I think it is in this case)

This approach gives the more flexability and the option of the smallest mininum payment so eliminates one of the primary reasons for fixing(payment don't get out of reach). you can still pay it off earlier if wanted say the same 17 years but can extend if needed just by paying less. If you go for a shorter term you have to ASK if you want to extend it.
(One limiting factor is income so if you plan to reduce this in the future say retire you should not extend beyond that date so for most practical purposes this is 65)

Still not know are the follow on rates which are important here because the cost of changing is high relative to the loan size which are loading the interest rate by 0.29 and will have some more to pay in 3 years with the fix.

I like Barclays mortgages because their fixed rates usualy have a tracker follow on rather than SVR, problem is Barclays fees(£1k) are much higher now.

3y fix 5.97%, follow on base+0.95%.
10y fix 5.87% same follow on

lifetime tracker
5.69% with fee
5.89% no fee
5.89% with fee and offset.

Unless you get lucky and fix long at low points I feel that for small loans like this the lifetime trackers are the best unless you HAVE to have fixed costs and interest only is allready the most you can pay.

The main reason are, NO more fees, tie ins, overpayment charges, fully flexable if you take the I/O longest term possible overpay when you can.

This approach is likely to be the best option for a lot people but brokers don't like it because it just cuts off their customer supply, much better to suggest deals that need renewing every 2-3 years.

Locoblade

getmore4less wrote: »

This approach gives the more flexability and the option of the smallest mininum payment so eliminates one of the primary reasons for fixing(payment don't get out of reach). you can still pay it off earlier if wanted say the same 17 years but can extend if needed just by paying less. If you go for a shorter term you have to ASK if you want to extend it.

Your comment triggered a thought about our remortgage as we have similar thoughts and want to have the option of reducing our payments to interest only in a couple of years time if required (planning for kids), and its just occured to me that whether you go for a 17 year or 25 year mortgage, if the rate stays the same the interest only payments per month are identical so the minimum you can pay doesn't change. Whats the chances that a lifetime tracker at say +0.99% will be the optimum mortgage to be on over the next 17 years anyway? If not then the whether the OP goes for 17 years or 25 years wouldn't make any difference would it?

getmore4less

Locoblade wrote: »

Your comment triggered a thought about our remortgage as we have similar thoughts and want to have the option of reducing our payments to interest only in a couple of years time if required (planning for kids), and its just occured to me that whether you go for a 17 year or 25 year mortgage, if the rate stays the same the interest only payments per month are identical so the minimum you can pay doesn't change. Whats the chances that a lifetime tracker at say +0.99% will be the optimum mortgage to be on over the next 17 years anyway? If not then the whether the OP goes for 17 years or 25 years wouldn't make any difference would it?

Thats one of the points you manage you repayment schedule and can decide what your term ends up being when you make the capital payments, start at 17 and you have to ask the lender to extend, start with repayment and you have to ask the lender to switch to interest only.

Start with the longest term and interest only with a deal that allows overpayments at least as much as the repayment would be and watch for tie ins and you are in control.

For large loans the effect of the costs of switching are reduced and the differences in interest rate make a bigger difference so the deals become more important.

Actualy looking at that Barclays offset the rate it is ok and this gives you the ultimate flexability since you can get the capital payments back without asking as well.

One other thing with the long term is make sure the deal is portable allthough not such a big deal if no tie ins.

Remember if you choose a long term flexable deal you can change at anytime to something else if you surcumstances change with the fix/penalties you are stuck.

One other thing with mortgages below around £50k you are approaching the sort of size were an offset and www.stoozing.com can significantly reduce your mortgage costs and have it paid off early. This is what we did with our £100k loan and now it is 100% offset(it was easier to borrow the larger somes on CC a while back at 0%)

Ian_Griffiths_Halifax

Some people want to keep things simple and make sure that they can budget and that their mortgage is going to be paid off.

Loobysaver wanted help with the 2 options she is considering. They aren't the options I'd have come up with but what she doesn't want is to have to take degrees in Mathematics and Economics to get a simple answer.

Sometimes the most financially savvy methods are not the most straightforward and simplest and people don't want to have to watch their mortgage payments and overpayments etc etc month in month out.

There's more to life than paying a mortgage.