Taking advantange of lower rates?

Ms_Brush

Hi All

I'm confused...

I am on a fixed 5.79% HSBC mortgage until May 2010, on the re-start (interest only) mortgage, converting to repayment in 2010 (dont ask, very expensive divorce!). I owe £156,000 and house was worth £220,000 in Dec 07 - its a bungalow, and prices dont appear to have dropped much in the area.

My circumstances have changed dramatically for the better since taking out this loan, and I have converted a portion of the loan to repayment, and overpay the rest where I can. In principle, I am happy with HSBC and dont want to bother going to another lender at this stage.

Point is, i want to reduce the loan as quickly as possible, and want to know if I can (or if it is worth) switching to standard variable and taking a hit on the redemption penalty - then keeping repayments the same, thus reducing the o/s balance more quickly.

I spoke to HSBC earlier on the phone to discuss and I am even more confused than I was before - I have no idea what the SVR is any more, as it seems to depend on a number of things, some of which incur fees and some dont... Is it possible to take advantange of the lower BoE base rates, and more importantly, is it worth the bother??

SHOULDI

Hi Ms Brush,

We were in a very similar predicament. Both our wages have gone up considerably since taking out the mortgage and had been paying the maximum 20% allowed on our Fixed Rate HSBC mortgage. We have made a decision to move to an Offset Tracker with First Direct.

But if you do not want the hassle, you could go down to HSBC's SVR of 4.44% (from 2nd January 2009). I was told it only takes a call to the Mortgage Service Centre and payment of the ERC and shouldn't take more than a few working days. You will be charged the Early Repayment Charge but no other fees.

The added benefit is that now you will not be tied to HSBC and if a deal you like comes around, you can easily remortgage to another lender without the redemption penalties as you have already paid this.

Good luck.

dunstonh

You need to work out what the cost of early redemption means in interest rate terms. e.g. if a £5000 charge equates to 1.2% on top of the standard variable rate/tracker.

You also need to remember that whilst rates are low now, they may only be lower for a period in 2009 before they start to go back up again. In which case, you could have paid a fee to come out of a decent fixed rate deal that gives you certainty to go into a variable deal which is cheaper for a short time before becoming more expensive later on.

Ms_Brush

Thank you for responding - not convinced I understand though... the 'rules' seem to change like the wind!

I dont care about what 'deals' are out there, or whatever. I bought my house to live in (and stay living in - hence the predicament I'm now in) and all I am interested in is getting the mortgage down to a sensible level as soon as possible, so I can stop worrying!

What I dont understand is why it is so bloody complicated? ... how do I even start working out what the redemption penalty is and what the reduction in payment will be...?

I have made an appointment with the mortgage adviser in the Bank in the new year.

_Andy_

Ms_Brush wrote: »

I am on a fixed 5.79% HSBC mortgage until May 2010

The early repayment charges for HSBC are usually 1% for each year left, so let's say very very roughly £2340.

I have no idea what the SVR is any more

There are two - one that is guaranteed not to be more than 1% above the Bank of England base rate, and one that is not. Which one you are eligible for depends on when you took the mortgage out (off the top of my head I can't remember the date).

, as it seems to depend on a number of things, some of which incur fees and some dont... Is it possible to take advantange of the lower BoE base rates, and more importantly, is it worth the bother??

You may be confusing the SVR (standard variable rate) and the tracker options.
The tracker options may incur a set up fee, the SVR won't.

What you need to work out is 1) Exactly what the early repayment charge would be if you came out of the rate now (a quick call to the mortagage service centre on 08457662255 would clarify - also whilst you're there check what the SVR would be for you). 2) What rates you could go on to (have a look on the website.
Then 3) Is it worth doing so given the early repayment charge.

The other thing I'd say is - I can see why you're looking at SVR/trackers but presumably you took a fixed rate as it gave you some stability. Another option would be, rather than come out of that rate, is to overpay as much as you can (think it's up to 20% without charge).

dimbo61

I would overpay by the 20% allowed and save into ISA,s until your deal ends !

Ms_Brush

Yes, you are right - I needed to know exactly how much my outgoings were when I took the deal, I had very limited options as my income was unstable and I needed to secure increased borrowing quickly (to pay extortionate legal fees) before the court allowed my ex to put a charge against the property. I basically panicked, didnt even consider the consequences, and took the deal the bank offered, just so I could stay in the house. I had wanted a 1 or 2 year fix and that wasnt really an option they were offering at the time.

18 months on, the ex cant get his sticky mitts on my house as divorce finalised, I am back in full time and secure employment, earning substantially more than before. Therefore, I want to get myself back on track as soon as possible, as mortgage should have been paid off in 3 years time if things hadnt gone so spectacularly pearshaped! I have been overpaying a bit, where I can, and it seems to be making !!!!!! all difference in the big picture! Seeing the rates falling seems to be a rare opportunity to start the process of finally sorting this mess out.

Ms_Brush

Yes, you are right - I needed to know exactly how much my outgoings were when I took the deal, I had very limited options as my income was unstable and I needed to secure increased borrowing quickly (to pay extortionate legal fees) before the court allowed my ex to put a charge against the property. I basically panicked, didnt even consider the consequences, and took the deal the bank offered, just so I could stay in the house. I had wanted a 1 or 2 year fix and that wasnt really an option they were offering at the time.

18 months on, the ex cant get his sticky mitts on my house as divorce finalised, I am back in full time and secure employment, earning substantially more than before. Therefore, I want to get myself back on track as soon as possible, as mortgage should have been paid off in 3 years time if things hadnt gone so spectacularly pearshaped! I have been overpaying a bit, where I can, and it seems to be making !!!!!! all difference in the big picture! Seeing the rates falling seems to be a rare opportunity to start the process of finally sorting this mess out. Trouble is, I wasnt expecting it to be this complicated...

Gorgeous_George

Over the next 17 months you will pay a total of £12795.90 on your current deal and still owe £156K.

At 3.49% (First Direct tracker) you'd pay £466.68 more but on repayment terms. After 17 months you would £150K. So, if yor ERCs are less than £5K it may be worthwhile switching. You take the risk of rates rising.

GG

Ms_Brush

Thank you - that makes more sense!

I guess all I need to do now is get HSBC to give me a redemption figure and then decide if its work the risk of the rates going back up. I will keep you posted after I have been to the Bank - I wont be signing anything in a hurry this time round!

What is everyone's opinion of what the rates are likely to do??

My gut feel is that they will stay low in the short term while the BoE chew the cud over finding other ways to control market forces as interest rate changes are so wholly ineffective now! After that - no idea...