Follow-on rate as stated in original mortgage offer - is it binding?

Chelinda

My 5 year fixed rate mortgage is due to end shortly and I'm looking at my options. In my original mortgage offer it states that at the end of my fixed rate period "the rate will revert to a variable rate which is 0.69% above Bank of England's base rate". In the current environment, that sounds like a pretty good deal - my question is, are they obliged to still give me that rate as it's in my mortgage offer, or can they refuse? I honestly don't know either way, but it would be great if I can hold them to it!

Many thanks

Senior_Paper_Monitor

It will be honoured (and has to be) unless there is a clause elsewhere in the offer placing a top 'cap' or bottom 'collar' on the rate.

You are one of the lucky ones - take the opportunity to continue your current (or similar) payments and you will start to make worthwhile inroads into the capital owed. This will enable you to obtain a cheaper mortage when the rates begin to rise (as they certainly will) and/or reduce the term of your borrowing.

Chelinda

That's great news - thanks so much for the advice. I have looked for another clause about a collar, but can't see one. The mortgage is currently an offset with a possibility of 10% p.a. overpayments, so if this can continue with this much interest lower rate, then that will be great for us.

getmore4less

Overpayment limits don't matter with offsets you just offset.

But with such a low rate you will be better off loking for savings account for the offset funds

Chelinda

Good point Getmore4less, thanks for that. I was thinking though about overpaying on my monthly repayments: having looked at the figures (mortgage minus savings) we will be paying interest on about £35k - that monthly amount is so low (£200 ish) that it seems to make sense to me to continue our current level of monthly payments (£650 ish) and therefore pay off the mortgage faster. Perhaps my maths and/or logic are flawed though, so if I should be doing something different, any advice is gratefully received!

getmore4less

Since the rate will drop don't overpay, offset, move the money into savings that pay more(after tax) if rates change swap back to offset.

ISA, and monthly savers will better the low mortgage rate as wil a few other savings accounts.

Some people think rates will stay low for a while and have been looking as NSI index linked savings(tax free)

Leon_W

Your maths and logic are flawed

As more getmore4less says, you would be better off not repaying your mortgage at all but putting any overpayments into a higher paying savings account. If you can re-draw any overpayments or borrow up to a "limit" then I would do that aswell.

If you are paying 1.19% interest only then your mortgage (in real terms) is reducing anyway due to the effects of inflation. CPI was 3.4% and RPI was 4.4% so by overpaying you are actually losing money.

Regards

Chelinda

Thank you everyone! Flawed logic, flawed maths, I am so ashamed ...!

I will start to look around for somewhere to put our savings. Cheers.

opinions4u

Chelinda wrote: »

Thank you everyone! Flawed logic, flawed maths, I am so ashamed ...!

I will start to look around for somewhere to put our savings. Cheers.

Stick to easy access accounts. Don't tie the money up in a place where you can't get to it. If the BofE rate goes up sharply and savings rates don't follow you want to be able to move funds from savings to mortgage (or mortgage offset if you have one) quickly.

Take a look at cash ISAs and The AA savings account at 2.8% gross (2.24% net).