Got Mortgage offer but worried...

liverpoolcarl

I have just been offered a mortgage I applied for with the Halifax.

The mortgage is a tracker for 2 years 4.49 above base rate giving a rate of 4.99.

Initially I was going to go with Nationwide on a 3 year fixed at 5.99 but decided against this.

The reason I never went with the fixed rate is there was a £120 difference to the tracker.

I am quite good and structured with money and when I complete on the house I am planning on putting £150 per month into a savings account for the duration of the tracker. The reason I am not going to overpay is I am conscious of the interest rates rising (although my gut feeling in this will not be in the next two years and if it is it would be by small amount e.g. 0.25%).

I will have £600.00 per month disposable income after all bills including the money into the savings account are paid.

Does this sound like a safe plan to everyone (I am a worrier sometimes even though I am good with money!)?

liverpoolcarl

Anyone??

Am not after cystal ball answers regarding the interest rate. Just opinions on my finances and if I covering myself enough and have enough disposable income etc.

foreversummer

The only query I would have is why you have decided not to overpay the mortgage and save instead. Does your tracker mortgage allow overpayments? I don't think you can get anywhere near 4.99% in a savings account at present.

It's great that you have a £13k buffer for any unexpected expenses when you move in. Disposable income sounds pretty good too.

Good luck in your new home!

Foreversummer

DJ_Mike

That 13k savings is a good buffer to protect your mortgage payments should you lose your job, so I'd keep that where it is - you've got 12 months worth in there! (Recommended is 3-9 months depending on how secure you feel.)

As for your disposable income - seriously consider keeping that and using it to overpay your mortgage. You will save yourself so much in interest over the coming years it's almost unbelievable! £600 a month is practically what I'm seeking to overpay, and doing so is shortening my mortgage term by 2-3 months each time I do it right now!

A quick advisory about overpayment limits on your two potential lenders, though:

Halifax lets you overpay 10% of the mortgage in a single rolling calendar year. This means that, as of the date of your first overpayment, all overpayments in the 365 days following this must not exceed 10% of your balance at the time you made that first overpayment. So say you had £175,300 left on your mortgage as of 20th November 2009, and you made an overpayment of £600 - you would be limited to overpaying a total of £17,530 between 20th November 2009 and 19th November 2010 (the £600 counts towards that). If you go over this amount you will incur Early Repayment Charges.

Nationwide is much more restrictive on their fixed-rate loans - you can overpay up to £500 a month without incurring Early Repayment Charges. £500 is rather restrictive in the first few years of your loan - but better in later years.

As you say, there is no crystal ball to tell you what the rates are going to be like on a tracker, but we're in a pretty good time financially right, now, and you can always remortgage to a fixed rate in 2 years time. Focus on overpaying that mortgage in the mean time and getting yourself a much stronger deal in 2 years time - remember, your LTV ideally wants to get below the 70% or even 60% mark and then you'll get some much better deals!

liverpoolcarl

Thanks, feel better now!!

I decided to hold the £150.00 per month in a savings account for two years in case interest rates shot up. I think I will just pay this off to save on the interest as I have the 13K buffer.

foreversummer

"I decided to hold the £150.00 per month in a savings account for two years in case interest rates shot up. I think I will just pay this off to save on the interest as I have the 13K buffer."


The rule of thumb is if you can find a savings account paying more than your current mortgage interest rate then you should save, if the savings account pays less than your mortgage rate you are better off overpaying. (The net savings rate is the one you look at rather than gross rate for normal rate tax payers anyway).

Its always good to have a healthy buffer and if you manage to increase this over the two years you can of make an additional overpayment, subject to the terms of your mortgage.

Good luck.

Foreversummer