Co-operative Bank - collar or floor?

RobsonS

Hmmm. I think I may have to look into this. I'm looking at a Nationwide Tracker but it has a collar over 4%. I'll need to check my loan to value of 70% doesn't cause issues.

smileychocolateface

I'm really confused about this - I have a coop tracker and paid extra into it - but then found out that it doesn't affect the monthly repayments (ie doesn't offset) that you have, it only reduces your term. So I took the money back out and put it in a 6.3% savings account - and then at least I can overpay with a 6.3% interest generating lump sum than a (at the moment) 2% mortgage which isn't even applied to your overpayments, it just reduces your term as you'll have less to pay. I was told that I would have to rejig my mortgage (can't remember what they called it! when you recalculate everything from scratch and essentially borrow less) to have less interest applied to the outstanding amount - but I think you can do that pretty easily and it doesn't cost much/or possibly anything.

Have I completely stuffed up? They did agree that it wasn't offset and it felt wrong to take the money back out, but it was doing nothing other than sitting in their bank account earning them interest and not affecting my balance or payments at all.

Help!

planetf1

My understanding was that the "overpayment fund" balance whilst not making payments less, *was* taken into account in calculating daily mortgage interest, so effectively is saving/earning you (current mortgage rate) %.

Obviously if you can get 2 x (current mortgage rate) from a savings account then overall that's a better deal as long as in either case you're not tempted to use the money for something else... (and you've paid off other higher interest debts)

At least that's how I see it.

stormyrider

I too have a Coop Base Rate tracker mortgage and scoured the T&Cs for any small print of the collar. I didn't find anything but will celebrate the latest 1% drop in rates once I have it in writing from them.

I was one of the very lucky ones to get a 2 year tracker at Base Rate less 0.61% which will be wonderful until it expires in October 2009. I just hope fixed rates have fallen to a good level by then and I'll look to fix for 5 years or so.

Anyway enough rambling...

The overpayment fund can be used to either reduce the term of the mortgage by paying off enough capital to keep your monthly payment the same or you can use it to reduce your monthly payment.

If you have a lump sum that you want to pay off though it may be better to quickly get some in a fixed rate bond that expires prior to your mortgage coming up for renewal. You can still get 4% after basic rate tax elsewhere fixed for say 9 months and then take the cash out and pay it against your mortgage before remortgaging. If you're even luckier and have a lifetime tracker with Coop then it may be better to take a slightly longer fix if the rates are good.

Interest rates are thought to be heading down to 1% or possibly even 0% at some point next year so you may be earning as much as 3.5% more by having your money in savings rather than against your mortgage. Thats £35 per £1000 per year additional interest that you will earn - pretty good when you're not taking any more risk.