What to do?

loopyloulou_3

Last month my mortgage came off my 3 yr fixed interest only, so went down by about £600 odd a month. I have saved this amount (although am only one month in!)

I don’t know what my house is worth, I would guess at £190000. Not sure at all though. I have a mortgage of about £176000 and earn £33k a year (my sister is on my mortgage as I had to add her to buy my ex out – long story).

I obv don’t want to stay on the variable rate (although it has its perks at the moment!) I want to know that my mortgage is £x a month and wont have to worry about the rate increasing. It worries me!

What is the best thing to do? Fix now? Wait 6 months and hope for the best (and save the difference?) Ideally I would like to fix it lower than it was before (I think it was 5.95%) and then be able to pay off some of teh capital each month rather then end up stuck on interest only.

I don’t know what to do for the best. I currently have a mortgage with Gmac and want to get away from them while I can, any advice would be greatly appreciated!

Lou x

DJ_Mike

Do you happen to know what variable rate is now that you're out of your fixed rate period?

If your house is worth 190k, you're still looking at an LTV >90% which means most mortgage providers will stick you with a very large interest rate. Certainly, when I was shopping around only a month ago, an LTV of 90% meant an interest rate of at leas 6.5% fixed.

Do you have any savings you can use to bring the loan amount down?

Seemore_2

http://www.zoopla.co.uk/home-values/


Hi lou, with regard to how much a property is worth, I came across this site a while ago and have registered with them to receive a monthly valuation for my property.

Cannot vouch for how accurate they are, but they seem to be roughly in line with current estimates.

poppy10_2

Can you overpay the money you are saving each month?

figgles

If your rate was 5.95% and you're saving £600 a month I'm going to guess that your variable rate is something like base + 1.49% (give or take a little). In the current market, and with your LTV I'd consider one of these options:

1. Ask your current lender what fixed deals they have.

2. Ask if you can make regular overpayments without a penalty and then set it to an affordable level (e.g. if current payment is now £250 ask them to always take £600 and review this as interest rates rise), and ensure that they calculate interest daily so that every month you've take a little more capital off and pay a little less interest

3. Save up and/or invest! With your current LTV you wont be able to move your mortgage easily so you can build up a lump sum to use to pay off a larger % and then move your mortgage at a later date.

The current feeling is that interest rates will stay low for a reasonably long time (12-18 months at least), and you will struggle to find a base +1.49% type mortgage these days, most seem to be base +2.49 or higher. I'd PERSONALLY favour option 2 and overpay, reducing your capital and therefore the length of your mortgage, etc.

getmore4less

I have never fixed eventualy went for an offset it stayed good and no more fees.

Fix does have some advantages but over the years I probably at least broke even by not having to pay fess that often,

Overpaying on a low rate is often much better than fixing and I think it is in your case having done the numbers below.

Look at the current fixed deals and the fees then work out where you would be at the end of another fix say in 3 years.

Then asume interest rates will stay lowish for 18months and then work out what the rate has to go upto if you overpaid for the 18 months by paying the sames as if you fixed.

eg.

Working on a mortgage of £176k interest only.
lets say your old fix was 5.96% so £873pm
this went down by £600 which is £273 so 1.86%.

If we look for a new 3y fix.(allthough you may be stuck with GMAC)
lets go with Abbey 3y 85% LTV 5.99% £995 fee so still a bit of an issue on LTV.

So starting point is £177k loan @ 5.99% so £884pm after 3years £176,981.32 left. (rounding the payment up)

The current loan of £176k, say rates go up a bit over the 1st 18 months so use 2.5%, thats £367pm but if you pay the £884 then after 18 months you will have £166,521.25 left to pay paying off over £10k for now extra cost. if they stay low say 2% then the outstanding loan at 18months is £165,216.03 over another £1k.

Now if rates go up they have to go over 6.37% before you start eating into the saving allready made , to actualy use up all the overpayments and put you back at the same possition as the fix they have to go up to over 10% which I think is unlikely over the next 3 years

At some point you will have to start paying off the capital, the longer you leave it the bigger the payments get.

£176k a 5.99% rate
£ 879 I/O
£1133 25y
£1260 20y
£1484 15y


One other thing you need to get the facts about your current deals right,

Interest rates,outstanding amounts, overpayment options, extimated property value, current lenders deals

SelbyJay_2

I'd make the over payments to reduce how much capital you owe. You can obviously afford the extra £600 a month so you might as well make as many over payments as you can while the interest rate is so low. Although rates will go up at some point, i think it's highly unlikely that they would go up so much that your monthly payments would reach the level they were at during your fixed period.

Making huge overpayments will also make it easier to remortgage on a more favourable fixed rate later down the line as your LTV will be lower. Or should be lower.

DJ_Mike

I would definitely agree with the others that overpaying is the way to go. In fact, on further consideration of what you posted, if you're paying £600 a month less than your fixed rate, it sounds like you're on a pretty reasonable SVR. I would stick with it - you're only going to get stiffed with a high rate if you remortgage right now.

Instead, focus on overpaying that £600 a month into your mortgage as a capital repayment each month.

Phone your mortgage provider each month and offer to pay that £600 as a one off capital repayment, and do this every month.

You could simply up your direct debit/regular monthly payment, but now that you're on a variable rate, this could be dangerous if interest rates go up substantially. It's better if you are in control of how much extra you want to pay each month!

I wouldn't bother with a savings account unless you can get a better savings rate, after tax, than what your mortgage rate currently is. In the current climate, that seems unlikely - but I don't know your mortgage rate.

My personal preference is go with the overpayments and get your capital down as low as possible - you'll enjoy huge savings in interest, and you'll be able to get more preferential mortgages in years to come.