Base rate cuts helping you become MF?

abouttimetoo

Hi Redbedhead

Yes, I'm definately benefitting from the base rate cuts and, like some others have mentioned, I'm keeping the payments as they were at the highest rate I was being charged in the past (5.75%) and also overpaying extra amounts. I know there are many schools of thought on this but I think you just need to be comfortable and do whatever feels right for you.

Regards

Pooky23

I am on year 3 of a 5 year fix at 5.35% so have not benefited from the recent rate cut. In fact, technically we are worse off as our savings rate has been cut - a complete reversal of how things stood this time last year.

To redeem our mortgage would cost 6k in fees, plus probably some extortionate fee for a new product, valuation costs, legal costs etc etc. I haven't done the maths but I cannot imagine saving money by changing now.

We will probably overpay the max, whilst keeping only emergency funds in savings. Reducing the mortgage by as much as possible and saving interest over the long term.

SmileyG_2

jamesd wrote: »

It's generally a very poor time to be overpaying on variable rate mortgages:

1. Savings rates that are higher than many variable rate mortgages are still available, even after allowing for tax.

2. Inflation is decreasing the value of the outstanding balance and the value of any overpayments that you make. This effect is likely to slowly decrease over the next 6-12 months, then increase strongly in 24-60 months.

Better to use savings accounts at higher rates that are still available and only put that accumulated savings pot to overpay once mortgage rates go up, the savings rates that are better than mortgage rates go away or you can get a better deal when remortgaging by reducing the balance with savings.

At the moment overpaying is likely to be losing you money.

I'm in the fixed rate club. 3 years to go:mad: .

I look at it like this. What would you be paying if interest rates were 5%?

That's what you should pay now!

StuartGMC

Some interesting comments here, thanks to all.

In our case with Natwest Offset they have only applied a 1% cut from 1 Dec, not 1.5% such that our mortgage rate is 4.95%. With our offsetting the impact of changes is moderated as only 20.96% of the capital incurs interest.

I have just checked the rates for the account in which the savings sit which offset, and see the rate has dropped to 0.3% (not that I'd keep cash there at that rate!). So combined with the 0.1% current a/c would earn, the effective interest rate is actually 1.20%. The alternative instant access a/c is earning 2.30% so this would lead to effective interest rate of 2.14%.
(It's unclear what, if any, reduction will apply after yesterday's BOE cut).

In considering whether to OP or place money in savings, as always, it will vary for each individual. I would note that at this time if you have a large savings pot and then lose your job, you'll not get state support until you've drawn down on your savings. Now, you can't suddenly drop a lump sum into the mortgage with the hint of redundancy because this would be deliberate reduction in your assets, again preventing you getting state support... but, if those sums had been paid in over a long period as OP, then this would not apply, your lender would be much more liable to make arrangements to defer repayment etc as you would be ahead of payment schedule.

These aspects should be considered in addition to interest rates and net present value and future value against estimates of inflation etc.

Personally, we've reduced our monthly investment amount to Stocks & Shares ISAs temporarily and thus boosted the OP to allow us to clear in Feb 2010, but we also have a schedule to save some £800 per month on top. In my view, balance your portfolio to meet your own short, medium and long term objectives not just one aspect, but those of you who've read my thread will know this argument of mine.

Best wishes to all in the various plans which have the common focus of mortgage freedom.

mortgageslayer

Now that the One account has confirmed another 1% drop as of 31/12 we are much better off. A 2% reduction in a 2 month period will work wonders for my mortgage free fixation! On the flip side, my parents will be taking a hammering on their savings income :-( so I feel bad for them...

Redbedhead

StuartGMC wrote: »

I would note that at this time if you have a large savings pot and then lose your job, you'll not get state support until you've drawn down on your savings. Now, you can't suddenly drop a lump sum into the mortgage with the hint of redundancy because this would be deliberate reduction in your assets, again preventing you getting state support.

This is the position I am in. Redundant from 2nd December and unable to claim JSA because we have kept 3 months salary in a savings account which is in my name.

Lynn11

You will be able to claim the standard job seeking allowance of £60.50 which I had to claim for cause we have savings of over £16,000. I am glad that we have the money there as hubbie is unsure about his job at teh moment so we have something there to help us if it happens.

Redbedhead

Lynn11 wrote: »

You will be able to claim the standard job seeking allowance of £60.50 which I had to claim for cause we have savings of over £16,000. I am glad that we have the money there as hubbie is unsure about his job at teh moment so we have something there to help us if it happens.

Thanks. I read it that I couldn't get that because of the savings, so I had better go and have a look at it all again. It is all still new for me with being made redundant this week. I have been focusing on getting a new job more than the benefits side, but I should look in to that asap as well.

Marie96

It's always strange to see people on different forums RBH - did you get the info I sent though? Apologies if I have the wrong person! x

Redbedhead

Marie96 wrote: »

It's always strange to see people on different forums RBH - did you get the info I sent though? Apologies if I have the wrong person! x

You have got the right person! Thanks for the info, I did email back to say thank you but I know the email system on H plays up regularly.

It was really helpful but I decided not to fight it as I did ok out of it and it was going to be so difficult for me going back due to commute time etc, that I decided to take the money and run!