Crystal Ball Anyone?

dave1983_2 · 30 August 2009 at 8:16AM

Good morning! I apologise if this is in the wrong place but hopefully people will help all the same! I've got a mortgage with HSBC on a lifetime tracker of base rate +1.24%. Whilst rates are low I'm overpaying the mortgage, always at least £1000 per month and sometimes up to £1200 per month instead of the contracted £270 per month. I've got £61000 outstanding which HSBC say will be paid off between 1 Jul 2014 and 1 jan 2015 depending on how much I overpay per month.

I'm too young to remember last recession (26) but I can afford the tracker if the base rate goes up to 16% (my tracker to 17.24%) - what happened last time once the worst was over? Would it be worth moving to a fixed rate now to protect for the future? I might only end up saving if interest rates went nuts though. I just wondered what were people's thoughts. Thanks!

lyndanic · 30 August 2009 at 8:31AM

Hi
I am not a financial adviser but i have a few mortgages on various different deals, and i have been researching the market on a daily basis!
My advise would be to stay where u are, u are in a great position. Rates will go up but not at least for a couple of years and then gradually. I dont think they will hit as high as you have suggested! I predict that the rates may even go to 0.25% in the next few months! Here is hoping!:j

opinions4u · 30 August 2009 at 8:37AM

No crystal ball, but here's a couple of links that may help:

1) Savings rates over the last 50 years to give you some idea of what happened after 1992.

2) Swap Rates to give you an idea of the changing costs of fixed rate funding.

I've got a mortgage with HSBC on a lifetime tracker of base rate +1.24%

That is a truly exceptional rate. Not one to give up without massive thought.

Whilst rates are low I'm overpaying the mortgage

Your mortgage rate is 1.74%. Why not pay the overpayments in to a savings account that has a higher net rate?

www.if.com ISA at 2.75% tax free for the first £3,600.

www.egg.com at 3.25% gross, 2.60% net (1.95% for higher rate taxpayer).

Halifax Regular Saver at 5.00% gross, 4.00% net (3.00% for higher rate taxpayer).

Keep an eye on rates, because they do change, but if you can build up a lump sum in accounts paying more than you're being charged on the mortgage you will earn more interest than you save overpaying the mortgage.

If the rate advantage disappears use the lump sum built up to repay mortgage debt. But while there is a rate advantage in your favour, milk it and reap the profits!

Would it be worth moving to a fixed rate now to protect for the future?

My crystal ball says no. Your tracker is exceptionally low and rates would have to rise significantly to justify fixing at a higher rate. Usual disclaimer applies - I'm a bloke on an internet forum, not an economist!

MrC-117 · 30 August 2009 at 8:38AM

Yes relative to a lot of mortgages at the moment you're on a good rate. If rates went high a fixed rate would only be protecting you until it ended, then you'd end up on a worse rate. That's the main reason I don't want a fixed rate at the moment.

dave1983_2 · 30 August 2009 at 8:59AM

Wow, thanks for the quick replies! Thanks for the links Opinions, the reason i haven't got it in a savings account is that the interest on the mortgage is about £90 per month, I couldn't get that in a savings account per month so I'd prefer to take the capital off the mortgage for incase interest rates do go crazy. I've got a full cash ISA, a regular saver and I'm looking at an investment ISA too.

Thanks again for you opinions and enjoy Sunday!! Cheers, Dave

opinions4u · 30 August 2009 at 9:09AM

dave1983 wrote: »

the reason i haven't got it in a savings account is that the interest on the mortgage is about £90 per month, I couldn't get that in a savings account per month so I'd prefer to take the capital off the mortgage for incase interest rates

£61,000 debt would cost you £88.45 a month at 1.74%.

£61,000 in Egg at 2.6% net would be earning £132.17 a month - over £40 a month more than you're being charged.

Each £1,000 overpayment to the mortgage will save you £17.40 a year. The same amount deposited in an Egg account will earn you £26.00 a year.

Your lender's shareholders will be absolutely delighted that you are choosing to repay the capital on a mortgage that they actually lose money on offering you.

MrC-117 · 30 August 2009 at 10:50AM

There are some downsides of having lots of savings though (as opposed to paying off the mortgage). General opinion around here is you want 6 months salary saved up.

If you were unfortunate enough to be made redundant you won't get benefits until you get below (I believe) £16,000 in savings. You're more tempted to spend it if you've got a large amount in a savings account, etc. You have to keep checking your savings rate doesn't go down after introductory rates, etc. Overall I think it's worth being (financially) worse off by the small amount.

Not really crystal ball stuff, but worth knowing the positives and negatives of overpaying and saving.

opinions4u · 30 August 2009 at 12:31PM

MrC-117 wrote: »

If you were unfortunate enough to be made redundant you won't get benefits until you get below (I believe) £16,000 in savings.

The first 6 months of job seekers allowance is based on national insurance contributions and isn't means tested.

In addition, tax credits are (IIRC) means tested against income only, not savings capital - I am quite happy to be corrected if I've called that one wrong.

Not really crystal ball stuff, but worth knowing the positives and negatives of overpaying and saving.

Sure is, and it's a perspective well worth highlighting.

dave1983_2 · 30 August 2009 at 2:38PM

Thanks again, I've got 6 months worth of payments safely tucked away and, due to my job, am extremely unlikely to be made redundant etc and would be covered in the event of death or illness/injury in service.

If I dropped my mortgage payments down to £275 p/m as contracted and saves the remaining £725 it would take me 7 years to build up £61000 in savings, by which time my mortgage would be paid off if I kept paying £1000, which would save nearly £9800 in interest according to HSBC. Does that mean it'd be more beneficial just to overpay?

opinions4u · 30 August 2009 at 2:51PM

dave1983 wrote: »

If I dropped my mortgage payments down to £275 p/m as contracted and saves the remaining £725 it would take me 7 years to build up £61000 in savings

But you wouldn't need to save £61,000 because your mortgage debt would still be falling every time you make the contractual monthly payment.

by which time my mortgage would be paid off if I kept paying £1000, which would save nearly £9800 in interest according to HSBC.

While interest rates for savers remain higher than the rate you pay on your mortgage, you would get more than £9,800 doing as I suggested in previous posts. Several hundred pounds more each year.

Does that mean it'd be more beneficial just to overpay?

No. Imagine your mortgage is a savings account paying 1.74%. Would you choose to open that account, or the instant access account at Egg that pays 2.6% after tax?

As long as you're disciplined enough not to spend money saved, and alert enough to keep an eye on the savings account to ensure rates after tax don't drop below the mortgage rate, then savings is the way to go.

michaels · 30 August 2009 at 3:24PM

I have about 200k mortgage with hsbc at 2.18% and about 200k savings (in wife's name as she is not working so has full allowance) earning on average 6% - do the maths if you want but it is about 7k pa that I would not have if I paid of the mortgage...