mortgage rates

kerryi27

because my husband is a subcontractor, we hae had to go with Alliance + Leicester with a broker. We are going for a fast track and our two options are as follows........

2 year tracker 2.89% or 2 year fixed 4.99%

i had opted for the tracker as there is a full 2% between the two and I was under the impression rates would not rise that quickly, I can change though to the fixed as long as its before I complete.

Can afford to pay upto about 6%

how high do people feel it could go. Does anyone think they could go up much more in two years??

Thrugelmir

Take the tracker, calculate the repayments if rates were 6% and if allowable overpay your mortgage to that level.

So as rates rise, which ultimately they will do, you will be well on your way to repaying your mortgage. By reducing the capital balance quicker you will already be making a buffer should rates rise even higher in the future.

kerryi27

I was thinking of calculating the overpayments and putting them in an Isa to help me pay the mortgage if rates go higher than 6%, If rates went to 8 or 9% Alliance and Leicester would expect me to make that payment regardless of how much I have overpaid in the past, wouldnt they??

Thrugelmir

When interest rates change. Your lender will recalculate your repayment on the outstanding balance at that point over the remaining term of the mortgage at that rate of interest. So as you overpay this will reduce the capital balance reducing the interest charge over the remaining term of the mortgage.

Best rates on ISA's normally require the money to be deposited for a fixed period. Interest on mortgages is (normally) calculated on a daily basis charged monthly. So when comparing obtain the true annual rate on the mortgage. The headline rate will be a simple rate not the the true APR which is higher.

I suggested overpaying as its a good financial discipline. The money is locked away and can't be used for other purposes. So easy to dip into with a promise to make up at a later date, which of course never arrives.