Mortgage Advice

toffee_bhoy

Hi,

Been a bit hasty and need some advice as to what to do. I'm currently on an SVR of 2.5%, outstanding mortgage amount of 130k, valuation about 220k so slightly better than 60% ltv.
Over the summer, I got a bit jittery and agreed a 5 year fixed mortgage at 4.5%. I'm intending not to draw down the money 'til January but am now wondering if I should just stay on the svr. My big mistake though is that I paid a 600 quid product fee up front, stupid I know. My feeling is that had I not paid the 600, I wouldn't be taking up the offer but as I have, I feel that I probably will end up doing so rather than throw away 600 quid (although going onto it might mean throwing away a lot more!!). If rates went to 6-7% I'd struggle a bit so that adds to my dilemma

Anyone got any advice/thoughts other than that I was a fool for paying the product fee upfront?

opinions4u

toffee_bhoy wrote: »

Been a bit hasty and need some advice as to what to do. I'm currently on an SVR of 2.5%, outstanding mortgage amount of 130k, valuation about 220k so slightly better than 60% ltv.
Over the summer, I got a bit jittery and agreed a 5 year fixed mortgage at 4.5%. I'm intending not to draw down the money 'til January but am now wondering if I should just stay on the svr.

This is a perfect position to be in at the moment.

Your choice is low SVR (that presumably tracks at BofE + 2%) v Low 5 year fixed.

Like you, I would find that a difficult call to make. Wait until for a couple of months.

My big mistake though is that I paid a 600 quid product fee up front, stupid I know.

You paid a fee close to 0.5% of your mortgage amount (0.1% if you average it out over 5 years) to give yourself the best choice you could. Not stupid. Maybe done in panic, but inspired!

My feeling is that had I not paid the 600, I wouldn't be taking up the offer but as I have, I feel that I probably will end up doing so rather than throw away 600 quid (although going onto it might mean throwing away a lot more!!)

Don't make the decision because you've paid the £600. See that £600 as a cost of giving yourself a choice in December/January, not as something committing you to the fixed rate deal.

If rates went to 6-7% I'd struggle a bit so that adds to my dilemma

That nudges me towards suggesting that you fix.

I'd wait a couple of months before deciding. See what's happening economically. January sees VAT rise by 2.5%. This will encourage the BofE to keep base rates lower for longer.

If you do stick with the 2.5% SVR then work out how much cheaper it is that the 4.5% deal and split that money between (1) overpaying your mortgage and (2) building up a savings pot that you only use as and when your mortgage rate goes above 4.5%, to subsidise your payments while you adjust the rest of your budget.

Mrs_Bumble

Excellent post by opinions4u

Not much to add really other than the SVR for now is fab, the 4.5% for 5 years equally not to be sniffed at! You won't get it now which in a way shows you that fixed rates have shifted upwards! you say you can't afford to be in the 6-7% rate bracket and so now you have lovely choices!

Personally because of what you have said above I personally would be fixing in January and taking the nice 4.5% rate for 5 years and smiling to myself that I had hedged my bets and come out smiling:)

johnbhoy10

Hi-i wish i had your choice mate. I too got a bit jumpy and booked a 5 year 4.69% with RBS. My prob is i'm on a fixed with YBS till end of feb and have an ERC of 3% (approx £2500). Deal expires on 12th october and now i've got second thoughts with talk of longer term low rates (maybe even a couple of years?). The banks legal team have being hassling me (which is good) about sending standard security to them and say they could have it dusted within a week. I'm leaning towards not taking it and then just paying the £299 fee when they come looking for it.

ps- can the OP not add the fee onto the loan if he wishes as originally i paid my fee and then asked them to add to the loan. RBS did this no problem and added my fee onto the loan as i wasn't changing the borrowing amount and then sent me a new offer and refunded my fee

Mrs_Bumble

If the OP adds the fee to the loan then he will pay interest on it over the next X,Y,Z years. Paying the fee up front is always best if it can be done.

johnbhoy10

Yeah-i was aware of that when i did this. Mrs Bumble-can you tell me at what stage does fee become payable-i'm confused as i've read a lot of talk on here about adding on to loan to avoid paying should you not proceed (possibly my scenario) but does it actually become payable when you send application off??

toffee_bhoy

Thanks a lot to everyone for their responses, very very much appreciated.

Just to follow on from johnbhoy, that was something I was a bit confused about. I've signed my agreement and returned it with the intention of drawing down the money at the latest possible time i.e 6 months after the offer. I also paid the product reservation fee. From my limited understanding, I could now still opt not to draw-down in Jan even though I have signed the agreement and I would lose the product fee I paid out? Is that the case?

However, if I hadn't paid the reservation fee up front, could I have opted not to draw down in January and not lost anything? That doesn't seem right to me as surely the bank would need something out of the deal. I suppose my question is, can I still get out of the deal even after signing the agreement and had I not paid 600 quid up front, could I have got out of the deal without losing the 600 quid?

Mrs_Bumble

Did you have the option to not pay the fee upfront? Some deals require the money paid up front because of this type of scenario.

Given what you say above I think that if you don't take the rate in January you may well kick yourself, you have already said that you can't afford rates 6-7%, have a look round at the minute you won't get near the 4.5% that you have secured.

toffee_bhoy

Hi Mrs Bumble. Yeah, I had the option to add it to the loan which I didn't take as I didn't want to pay interest on it. I now feel that that was a big mistake as I'd obviously lose it now if I didn't draw down the money and it feels like a lot of money for me. Will probably go onto the fixed in january but keep changing my mind!! Too indecisive!!

Mrs_Bumble

You not got a birthday coming up in October have you lol?

My feeling assessing what you have written above is that you have played the game well and if you were playing poker January is probably as good a time as any to fold and get out with the pot

johnbhoy10

Mrs_Bumble wrote: »

Did you have the option to not pay the fee upfront? Some deals require the money paid up front because of this type of scenario.

Given what you say above I think that if you don't take the rate in January you may well kick yourself, you have already said that you can't afford rates 6-7%, have a look round at the minute you won't get near the 4.5% that you have secured.

I take it that if you had option to add fee to loan there is a chance i may get away without paying the fee if i don't proceed! The impression i'm getting is that it depends on the individual lender whether they will come looking for it or not?