Fixed Rate mistake - what to do?

KevinRussell

My mortgage is with Standard Life. I have two accounts, one for £24,000 (Repayment) and another for £36,000 (interest only) and an Endowment to cover the latter.

Early last year as part of a review of my expenses I moved both mortgages to fixed rate - 6.5% until 2013 (I know, I know!).

Obviously I am paying over the odds and will be for some time to come - I am trying to work out what I can do about it. The penalty for moving or even changing to another Standard Life Product is £3,200!

I have 12 years left to run.

Any pointers?

Angelboots

Im fixed into my mortgage with a similar rate unil Jan 2010 and was thinking the same thing, but i decided otherwise as i wouldnt 'really' be saving much money.

Here's at how i arrived a my decision:-

1) Do i have enough cash immediately to pay off the penalty from my current provider?

2) Am i able at this moment to get another mortgage from another provider (remember deposit needed, house price values flucuatings etc, costs of new valuations, legal costs)

3) What are the other rates on the other products and are they fixed for a time period also?

I used BBC mortgage calculator to project any savings i would make

If the savings are significant (more than the penalty) then i would really think about moving them. However we all like security so i understand why you've chosen a fixed mortgage. But think there are no assurances either way that the interest rates wont go up again, and then 6% etc may be a good rate to be fixed in for.

Good luck

K

Joe_Bloggs

I would say look into the possibility of making overpayments. These will reduce the capital upon which the 6.5% is charged.
Only overpay money that you know you will not need back in a hurry. You know you didn't need it if it has been in a savings account for a few months. Consider overpaying with unused savings. The rate you get by overpaying is equivalent to getting 7.8% per annum on a savings account.

Martin says it all better than I could.

J_B.

koexelek

I get asked this question quite a lot.

If you are looking a a huge penalty, it might take you a couple of years or so before you recoup it over your monthly payments.

The question you need to ask yourself is if rates will stay low for the next few years.
If you think yes, it could be worth doing it. If you think no, it would probably not be worth doing it.
It's all a gamble.

dunstonh

Your fixed rate is below that of the average variable rate. It may seem high at the moment but you have certainty of knowing exactly what you are paying until 2013. By that time, the rates could be a lot higher.

As koexelek says, you have the early repayment charges to consider and it may take you 12-24 months to recoup those only to find out that you would have been better off on the fixed rate. You could end up making mistake after mistake.

KevinRussell

Thanks for all of your thoughts - it's all sound, and confirms what I guessed :embarasse

as I wasn't recommend the Fixed Rate I guess there is no recourse for forcing my way into another product.

I do regularly overpay, and have previously had an agreement that when my monthly payments go down, I continue paying the same. I am astonished at the difference that making even a small overpayment can make to the mortgage term.

Out of interest, this may seem like a silly question but does anyone know how the monthly mortgage payment is calculated? I tried taking the Mortgage amount, using the interest rate to get an annual charge and then dividing it by 12 months but the figure is lower than my monthly payment?

lisyloo

I tried taking the Mortgage amount, using the interest rate to get an annual charge and then dividing it by 12 months but the figure is lower than my monthly payment?

You've done it correctly, but your payment will be higher because you are making a capital repayment rather than just interest alone.

dunstonh

as I wasn't recommend the Fixed Rate I guess there is no recourse for forcing my way into another product.

The reason for choosing a fixed rate is certainty of rate. Not about being the cheapest or best. Even if you did get a fix rate recommendation, you cant complain about it because the SVR has gone down.

Gorgeous_George

You need to work out if a new 5-year fixed rate would save you more than the redemption penalty plus arrangement fees etc. It is unlikely and is the risk that you take when you sign up for a fixed rate.

GG