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Advice please.... what would you do

Our fixed is up in Oct with the Nationwide and we will automatically revert to a rate of 2.5% so my question is are we silly to think that we could chance our arms and get away with that rate until well into the New Year and then fix as this will save us pennies under £200. a month.... happy days !!! or shall we arrange another fixed now to start when this current deal ends in late Oct ?

It will then be on a mortgage of £108k'ish for 23 years, as we bought the house 2 years ago in Oct for £162k but paid a £50k deposit and took out a £112k mortgage.

We are being offered a 2 year fixed at 3.79% but with a £1k fee, which we would need adding onto the mortgage.................... or 3 years at 4.49% both of which would save us £££'sss and that is our main aim at the moment with our young family being our main priority.

So do you need to be a gambling man when it comes to the base rate changing each month or in the present circumstances not ??

Any advice/tips would be greatly appreciated.

Many thanks

City Girl

Comments

  • Cannon_Fodder
    Cannon_Fodder Posts: 3,980 Forumite
    If you can be certain of making overpayments of the amount you save, it might be worth a six month punt.

    Otherwise, I'm tempted to say fix, not because rates are likely to rise this year, but because if we get some further house price drops through autumn/winter, the lenders might view your property as falling into 85% or 90% LTV come the New Year, which affects the rate you will be offered.

    More than 3 years would be a good idea, imo, to cover those future interest rate rises.

    The 3yr one is the best of the two if a longer fix is unduly expensive, as it gives you longer to eat away at the capital and save to make overpayments should the LTV become an issue.
  • Rates at present are very very very low. You might not realise this but the are,
    see the link below, if you think they will not go up and up and up again over the next 2-5 years please explain why.

    http://www.bankofengland.co.uk/mfsd/iadb/Repo.asp
  • getmore4less
    getmore4less Posts: 46,882 Forumite
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    Rates at present are very very very low. You might not realise this but the are,
    see the link below, if you think they will not go up and up and up again over the next 2-5 years please explain why.

    http://www.bankofengland.co.uk/mfsd/iadb/Repo.asp


    That link is to base rates not mortgage rates which is what actualy matters to borrowers, when the base rates droped below 4.5% late last year the traditional link of mortgage rates to base rates was broken.

    Historicaly allthough we have low base rates I think we also have very high differential for mortgage rate, trackers are now base +2%+ where as typical trackers were base +1% not so long ago.

    The current fixed rates have some rises built in.

    A quick look turn up this graph for SVR, it show the differentials are much narower historicaly.
    http://www.whatprice.co.uk/financial/base-rates.html

    So as rates rise I think we will see a narrowing of the margins.
    Eg if base rates go up 4.5% to 5% mortgages will not rise by the same amount

    here is another comparison for 2y fix and SVR against base going back to 03
    http://www.mortgageguideuk.co.uk/blog/uk-housing-market/historical-interest-rates/

    2y fixes were tracking at base +2% they are currently base+ 3.5% and typicaly have historicaly high fees.

    So my view is rates will rise, probably slowly, over the next 1-4 years but anyone with a good tracker or SVR might as well stick with it and overpay, this will more than compensate for later rises that are a bit higher than expected.

    All the calcualtions I have done point to overpaying if you have a low rate rather than fixing now.
  • I am in a similar position going on to 2.5% next month. This will put me in position to over pay whilst at 2.5%, what happens when you overpay each month with N.Wide, does it reduce the monthly payment each time?

    Thanks
  • bzd
    bzd Posts: 121 Forumite
    Part of the Furniture Combo Breaker
    Hornet,

    I believe overpayment by £500 or more reduces your monthly payments. I'm not sure it's automatic if you over pay by less, but of course you still reduce the capital and thus reduce the amount of interest accruing (I assume they work it out toward the end of the mortgage term).
    If you're out of your deal period (which the OP and you are if you're dropping out of a fixed rate) then there's no penalty for payments over £500.
    For those of us still in the deal period £500 is the penalty-free limit. If you have multiple NW mortgages in their deal periods -- even if all on the one property -- then you can pay up to £500 on each mortgage without penalty.

    [note: if you're in your deal period and want to overpay as much as possible, you might want to ask NW to reduce the term rather than reduce the payment each time you overpay by £500]

    The great thing about NW overpayments is that you can apply for the overpayments back in the future, or take payment breaks to the equivalent value, making them almost like an offset savings account (although not-so-instant access -- I don't know how long such an application takes, anyone?).

    Cheers,

    Bzd
  • Thanks for the advice. So if I over pay £100 a month the monthly payments will not reduce?
  • Gorgeous_George
    Gorgeous_George Posts: 7,964 Forumite
    Part of the Furniture Combo Breaker
    edited 1 September 2009 at 9:04PM
    You effectively have a tracker capped at BR+2%.

    I'd stick with it for the next few years.

    If you can afford to overpay £100 per month, I'd save it in a (cash) ISA at 3.5% or more and only pay it off the mortgage when I could no longer save it at a higher rate (than my mortgage rate).

    GG
    There are 10 types of people in this world. Those who understand binary and those that don't.
  • City_Girl wrote: »
    Our fixed is up in Oct with the Nationwide and we will automatically revert to a rate of 2.5% so my question is are we silly to think that we could chance our arms and get away with that rate until well into the New Year and then fix as this will save us pennies under £200. a month.... happy days !!! or shall we arrange another fixed now to start when this current deal ends in late Oct ?

    It will then be on a mortgage of £108k'ish for 23 years, as we bought the house 2 years ago in Oct for £162k but paid a £50k deposit and took out a £112k mortgage.

    We are being offered a 2 year fixed at 3.79% but with a £1k fee, which we would need adding onto the mortgage.................... or 3 years at 4.49% both of which would save us £££'sss and that is our main aim at the moment with our young family being our main priority.

    So do you need to be a gambling man when it comes to the base rate changing each month or in the present circumstances not ??

    Any advice/tips would be greatly appreciated.

    Many thanks

    City Girl

    That £1k fee for just two years of fixing will hit you.
    Try http://www.maggenhoof.co.uk/mortgage/
    I make out you'd be slightly better off if the SVR was 5% over the whole 2 year fixed.
    Useful calculator.
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