Interest only, fixed rate, low redemption penalty remortgage?

Rachel85

I usually believe myself to be fairly financially aware, but I'm really confused as to what to do regarding mortgage situation, so sorry for my naivity.

DH and I have a mortgage of £107,000 on a house worth approx £200,000. Our current deal with Nationwide (5.18%) is due to end in March so we need to consider our options. As far as I know we both have decent credit ratings and a joint income of approx £75,000. I have a student loan (new system) and DH a car loan of £600 per month. Nationwide say they'll lend us £280,000! I don't think we'd be able to afford to eat and pay that back.

Our current mortgage is interest only, and we have enjoyed this flexibility. We have approx £40,000 in savings between us - a large amount of this was my redundancy pay but the rest we have saved towards repaying the capital. We could, if necessary, use some of this to reduce our mortgage now and thus increase our equity although I'd like to keep some in liquid assets.

The Sunday Times today recommended that anyone with 40% equity goes for a tracker mortage. Ideally I'd prefer a fixed rate as I like the certainty, but would consider a tracker. It's also possible that we may look to move house in the next year or two (I'd like to, just got to let DH come round to it being his idea!) so don't want to be locked in for too long.

So I guess ideally I'm looking for an interest only, fixed rate with low redemption penalty (or the ability to transfer to a new property - it's unlikely any new house we buy would involve a mortgage increase of more than £20-30,000). I know that I'd highly unlikely to get this in today's market, but two out of three would be good!

If anyone is able to offer advice I'd be really grateful.

Thank you
Rachel85

opinions4u

The starting point should be finding out what will happen if you do nothing.

If you move on to the old Nationwide SVR of 2.5% there is a case for sticking with that, as it is contractually BofE plus 2% and gives you the ERC flexibility you require.

If you do go for a fix, ensure it provides that portability that you need for a future move.

Rachel85

opinions4u wrote: »

The starting point should be finding out what will happen if you do nothing.

Thanks, that's really helpful, We had considered doing nothing. The current Nationwide SVR looks to be 3.99% which would see a slight reduction in our monthly payments. What's the "old rate"? Sorry I've not heard of that.

My only reason for wanting to re-fix is in case mortgate rates begin to shoot up. My mum always talks about what happened in the early 90s and I worry about that happening again!

Thanks again
Rachel85

opinions4u

Rachel85 wrote: »

Thanks, that's really helpful, We had considered doing nothing. The current Nationwide SVR looks to be 3.99% which would see a slight reduction in our monthly payments. What's the "old rate"? Sorry I've not heard of that.

Mortgages over a certain age (around 11 months I think) move on to the old SVR. Worth digging out your old mortgage paperwork to check, but I think you'll benefit.

My only reason for wanting to re-fix is in case mortgate rates begin to shoot up. My mum always talks about what happened in the early 90s and I worry about that happening again!

It is a risk and you can see what sort of fixed options there are at sites like www.moneysupermarket.com.

You could, however, use the drop to 2.5% to overpay the difference between what you pay now and what you need to pay. BofE rate would have to increase six fold to make you worse off that you are at the moment, and in that period you will find that you can make significant debt reduction.

I wouldn't fix at the moment if you do get the 2.5% option. But I don't have a crystal ball on the future.

Rachel85

Thanks, that's really helpful. We got our mortgage 3 years ago so fingers crossed we'll benefit. If so I think we'll stick it out for a bit (but be prepared to fix should things start to change) and save the money we're saving towards either paying off the capital or a potential house move.

It's so difficult to know what to do though - I really wish we had a crystal ball!

Thanks for your help and advice.