Any chance I can move to a Variable Rate Mortgage?

garethevans_2

I have a question about my mortgage. I'm currently paying £1600 a month in payments on my house. I'm locked into a contract for 3 years with Intelligent Finance which I agreed to a couple of months before rates started tumbling (I kick myself again and again over this). That was around 1 year and 3 months ago, so I'm not even half way through yet. Many people I know with similar mortgages to mine are now on trackers and they're paying around 10% of what I'm paying.

So, my question is... is there any way I can get out of this fixed rate mortgage and switch onto a variable rate? I've got a feeling it's unlikely, but I thought I'd check by posting on this site as I'd be kicking myself again if there was a way round it.

I know if I want to get out of the mortgage a 3% fee would apply (which would be around £9k). Would it be possible to pay this fee and switch to a variable rate mortgage instead? (assuming rates stay as low as they are currently and assuming I can raise £9k I may be better off?)

My situation is £300k mortgage, house is worth £350k, so £50k equity and currently paying interest only payments of £1600.

One tricky point which may affect me switching lenders is that I have had some difficulties paying a credit card in the past 6 months and this has gone on my credit file so I'm a bit nervous about how this will affect my chances of re-mortgaging in the future. I've not missed any mortgage payments though and have kept up repayments on other loans and credit cards.

Is there anything I can do or am I stuck in this situation for the remaining term of the contract? I'm assuming the mortgage would switch to a tracker mortgage once the 3 years is up?

Thanks.

Cannon_Fodder

Its possible, yes.

Have you read http://www.moneysavingexpert.com/mortgages/fixed-discount-mortgage-guide ??

"The fact you lost doesn’t mean it was a bad bet.

The same is true with taking a fixed rate. If you are doing it because personal circumstances mean surety counts, if the facts after the event show a discount would’ve won, that doesn’t make your choice wrong."


To recoup the £9k, you'd need to undercut the current 6.5% (ish?), by at least 2%, and wait 18 months just to break-even. And factor in the fees of the new deal, etc...

In 18-months, variable rates could be moving up...then you might be having to pay an ERC to switch to a Fixed deal...

What repayment vehicle do you have in place - does that have much in it, that could immediately reduce the size of the mortgage?

Or ask IF about Repayment instead of Interest Only, to put some dents into the capital outstanding?

opinions4u

garethevans wrote: »

I have a question about my mortgage. I'm currently paying £1600 a month in payments on my house. I'm locked into a contract for 3 years with Intelligent Finance which I agreed to a couple of months before rates started tumbling (I kick myself again and again over this).

Your reasons for fixing haven't changed though. So stop kicking yourself over it. You paid for peace of mind, you got that guarantee of payments. If you bought a fixed rate today with a different lender you would probably be paying a similar rate.

That was around 1 year and 3 months ago, so I'm not even half way through yet. Many people I know with similar mortgages to mine are now on trackers and they're paying around 10% of what I'm paying.

They're lucky. Nothing more. If rates had gone up the other way then their trackers would have crucified them.

They still have to adjust to rising rates at some point in the future. Some of them will struggle.

So, my question is... is there any way I can get out of this fixed rate mortgage and switch onto a variable rate? I've got a feeling it's unlikely, but I thought I'd check by posting on this site as I'd be kicking myself again if there was a way round it.

It depends on the lender. You need to ring IF first. With Nationwide you can't. With others you can. I don't know about IF though.

You should be able to remortgage if you've got 15% equity. Take a look at www.moneyfacts.co.uk for available deals. A combination of being over-optimisitc on valuation and a £9k fee could kill that plan off though.

What rate are you currently paying? I believe IF have an SVR around the 4% mark. This may not save you enough.

I know if I want to get out of the mortgage a 3% fee would apply (which would be around £9k). Would it be possible to pay this fee and switch to a variable rate mortgage instead? (assuming rates stay as low as they currently and assuming I can raise £9k I may be better off?)

Remember, what you're saying is that you want to jump on to a variable rate at a time when interest rates are at their lowest. Some may caution that the only way is up - although the beginning of that ascent may be well in to next year.

Depending on the rate you're on now you are probably best getting to the end of your lock in period and then looking to remortgage - perhaps at a fixed rate.

My situation is £300k mortgage, house is worth £350k, so £50k equity and currently paying interest only payments of £1600.

I know you probably don't want to pay more, but why are you on interest only? What are your plans to chip away at the capital? Whatever decsion you take, if you don't have a suitable investment (e.g. ISA or pension) alongside then get on to a repayment mortgage asap.

One tricky point which may affect me switching lenders is that I have had some difficulties paying a credit card in the past 6 months and this has gone on my credit file so I'm a bit nervous about how this will affect my chances of re-mortgaging in the future. I've not missed any mortgage payments though and have kept up repayments on other loans and credit cards.

It could affect you, yes. Make sure you get on top of the situation quickly though. Missed payments and arrears in the middle of a shortage of money to lend means lenders, who can cherry pick their customers, may not be interested.

This changes the post from one of enquiring about rates in to one that suggests an element of financial stress. Rather than focusing on your mortgage you should perhaps be looking closely at your whole financial situation - I'd strongly recommend the Debt-free Wannabe section of this site as a starting point. You will get real support there in looking at ways to reduce your spending and possibly increasing your income.

I'm assuming the mortgage would switch to a tracker mortgage once the 3 years is up?

Don't assume. Dig out your Key Facts document and know what it will go on to after 3 years. If it goes on to a base rate tracker at 0.5% then remortgaging may be the worst financial move you've ever made. If it goes on to a 4% SVR then less so.

Jonbvn

opinions4u wrote: »

They're lucky. Nothing more. If rates had gone up the other way then their trackers would have crucified them.

Sorry but I disagree. We were on a fixed rate until just over a year ago. When we had a look at the available products, and the outlook for interest rates, it was clear to me that they were due to fall. I even made a post on here suggesting that rates were likely to fall, and fixed rates weren't the best idea. Furthermore, we wanted to start massively overpaying the mortgage.

Given the above, we judged that a tracker was the best product for us. I will however concede that I never expected rates to fall quite so low (who did?). This has scuppered our overpaying plan, given that we are getting much higher returns from savings and investments.

The other thing that a tracker mortgage offered was flexibility, since we could move onto a fixed rate at any time without penalty. The reverse was not true.

Finally, if our mtg interest rate ever rises above our savings rates, we will move the savings into the mortgage, to act as an insurance policy, thus avoiding crucifixion.

So in our case it was mostly judgement, not luck!

_Andy_

You could see if IF will let you change to SVR - assuming you're happy to instantly increase your debt by £9k for the sake of short-term outgoing saving.

I don't see changing lender to be an option - high LTV, interest only (with I'm guessing no repayment vehicle) with minor recent adverse, that's before the fact the valuation will probably come in less than the £350k.

garethevans_2

Thanks for the replies guys, really helpful information there.

I will phone IF and get some answers on what happens when I come to the end of the fixed rate period. I think staying put is the best option for now weighing up the pros and cons of paying the £9k to get out of my existing contract.

Selling the house and moving into a cheaper property is definitely on the cards, then I'll switch to making repayments instead of just interest only.