Way to play this?

dylansmum

Hi All and Happy Easter Monday

As of next month OH and I will have a goodly surplus (over 2K - but some will go to service last unsecured debt quickly (under 5K) and for savings for other stuff as posters here rightly suggested) to tackle the mortgage.

At present our mortgage is with Halifax SVR 3.4% at just under 63K.

House valued (survey not estate agents who overvalue) two weeks ago at 145K

We bought in 2000 for 35K but rest went on doing house up (it was a shell).

We can pay 10% overpayments without penalties. But wondering whether to switch mortgage to fixed rate or not...or wait a bit and pile on as much as possible on svr rate? Bamboozled by mortgages:rolleyes:

Thanks in advance for your kind advice!

StuartGMC

Firstly well done on reducing the debt; as it is probably a higher interest rate than the mortgage do try to clear first. Then consider your budget in detail to identify what you truly have as your annual OP available after allowance for usual costs, pension, savings for planned costs (holiday, known purchases needed) and your planned savings for other things required less frequently (replacement car, fridge, washing machine etc).

Then the question is the timescale you have in mind to clear the mortgage and your ability to absorb increased interest rates. Also remember moving to a new scheme will probably incur costs for you too. Also, I assume your present lender has a lot of history on you for repayments, so would perhaps be favourable if you sought reduced payments if redundancy hit; would moving to another lender make a difference in their handling of you in the same circumstances? I don't know but it's worth considering.

Then you are basically looking at a question of "when" will interest rates rise and "how much" can you afford them to increase by. Fixing now will almost certainly mean a higher rate than the SVR, will incur some costs, tie-in and limitations on OP (although it may be no different than the 10% you have now).

There is much debate trying to predict the bottom to the recession, and what may happen to inflation and hence interest rates. If you can handle the small increase to fix now, but would struggle at 6% then you may decide the extra costs are worth taking on sooner or at least monitoring for changes so you can fix quickly. However, these shifts in rates could be Spring 2010, so you may wish to risk not getting a fix if you are able to gain for 12months on the present SVR.

An alternative to think about, because you are clearing debt is to build your savings and look at an offset mortgage provided you can work with having money "available" and won't feel tempted to spend it. This means you can be flexible in repayments, gain from reduced interest rate via offset and don't have any ERC to think about typically. These are not suited to everyone but worth exploring whilst you have time.

One thing seems certain, mortgage rates are unlikely to get any lower, but it really is a guess as to when they may rise again.

I doubt that has helped you much but I hope it gives you both something to discuss?

RosieTiger

I think Stuart's advice is absolutely sound - I would just add read it through a few times before you decide !

dylansmum

Amazingly helpful - all worth thinking thorugh carefully. We can absorb higher rates (have budget for this) unless, of course, they go to 12% - but even then we could cope as I am a meanie! Hopefully, this will not happen.

Halifax mortgage 7 years and no trouble with them at all. But an offset sounds worth looking at! As you say no one knows when they will rise...we will have rid of other debt in three months max.

HUGE thanks!