Best to drop from 6.15% to 2.49% or look for new fixed term deal?

meb97me

Hi

Our 2 year fixed deal is up at the end of September with A&L. It was our first house purchase.

We borrowed 100% on a £225k mortgage (well 95% mortage 5% unsecured loan i believe is how it was broken down) The fixed rate was 6.15% and we were paying interest only for the first year and a bit which worked out at about £1170/month. For the last 6 months or so we have been paying and additional £499/month which is that max overpayment allowed and we've also been putting an additional £300 into an isa which is effecitvely makes up the additional £800 a month a repayment mortgage at the same rate would have been.

When our fixed period runs out we drop to 1.99% + the BOE baserate so currently that would be 2.49% assuming the BOE baserate of 0.5% holds till then. Now obvioulsy that would make a huge saving in the amount we are paying out each month. Although the plan is to still pay/put away the same amount and try and take a nice chunk out of the mortgage.

We'll also have probbly about £15k in savings we can use come renewal time to hopefully reduced the LTV rate.

However i'm a bit worried that rates are pretty much at rock bottom now and as i see it the only way they can go is up, so would it be prudent to try and fix a nice 5 year/10year deal now?

I'm no financial expert and have no idea about financial markets and the ecomony so i'm struggling a bit as where to look for sound financial advice.

i looked at a site which tracked the history of the BOE baserate and the BOE baserate when we got our last deal was at 5.75% so there would appear to be plenty or room between where we are now and where we were when we last got our deal before we would potentially be any worse off (assuming they would be offering the same sort of rate deals, but i guess thts the big IF!)

Anyway i'd very much welcome peoples opinions or anyone in the same sort of position

Cheers

_Andy_

if you do a search for something like 'fixed or svr' or similar, this has been discussed numermous times on other threads.

MountainMan101

We're in a similar situation, we got our house October 2007 but the mortgage deal was 22 months and so ends in August. We go from 6.25% to 2.5% (or thereabouts). The difference is it was a 95% mortgage and straight repayment.

My opinion is that it depends on your financial security and long-term plans. We aim to stay here for about 10 years, and one of our salaries can pay the mortgage + essentials. So instead of overpaying the mortgage we're improving the house - new kitchen, new external doors, central heating, decorating. Then when the rate drops we're going to overpay at the previous monthly amount. The work we've done should add value - as all we need is perceived increase in house price to give us a better LTV when fixed rates/trackers become reasonable again.

If you want to move soon, or have a riskier financial situation then overpaying / saving might be better. I think some savings are better than only overpayments - having 3 months mortgage in a savings account gives you 3 months to find a new job - unless your mortgage allows you breaks based on previous overpayments.