2 Year Fixed Ended - do I switch to repayment?

Steve1982

Hi,

I have a flat that I have a 90% interest only mortgage on and my current 2 year fixed deal has just ended. My mortgage is now switching to the banks standard Variable rate (which I believe is 4%) which reduces my monthly payments from my previous fixed deal by about £150 per month.

I am just wondering whether its worth sticking with this and hope that the rates stay low for the forseeable future or I switch to a repayment mortgage (this would be £15 more than I am currently paying per month) or tie into another fixed deal.

A couple of things that may impact on this:

1. I may look to sell the property in the next few years
2. There is a big risk of imminent redundancy in my current line of work

Any thoughts/suggestions that anyone has would be greatly appreciated

tkitmike

Hi there,

My advice (and I am no means an expert)

Would be to look at a fixed year deal, if it's going to cost you £15 it may well be worth doing.

Of course saving £150 per month is great, but that's because the Bank of England base rate is at 0.5% - it's not going to get any lower, it will most likely start rising early next year, so your 4% will most likely rise in-line with this, and you may end up paying more than you currently are.

Good look and sorry to hear about your possibly redundancy.

Funkygibbon

Wouldn't it be a good idea to move onto the variable rate while the rates are still low, overpay every month by the £150 saving thus improving you ltv to get a better fixed rate deal when the rates start to go up?

tkitmike

Good idea @funkygibbon - I didn't think of that

Steve1982

Thanks for the advice. With regards to overpayment, how is this likely to impact on my future rates, for example if I kept on the variable rate interest only but overpaid £100 per month for 6 months to a year, as I guess by then the rates will start heading up so may be best to switch to fixed then.

Thanks for the kind words re:redundancy, it hasnt happened yet but sadly is the way of the world. Hopefully my savings will keep me going long enough for me to sort something new out.

GMS

If the mortgage reverts to the lenders Standard Variable Rate (SVR) it can change at any time. It is not reliant on changes in base rate. If it is linked to Bank Base Rates or LiBOR then it would adjust accordingly, but this would be a tracker rate not SVR.

It is all very well taking advantage of low rates at present but there seems to be a general belief that WHEN rates rise you can simply opt to fix. Possibly true, dependent upon fees etc but even if it is simple to fix at that point who knows what the rates will be? Invariably as SVR, BBR, and LiBOR rise so will the fixed rates so the fixed of today may not be there in the future.

You need to work out if you are prepared to take a gamble, or fix for the security of knowing the payments.

Steve1982

Thanks for the advice, I agree that if interest rates do rise the availability of fixed rate mortgages and may decrease or the rate they are fixed at may be worse. Do you think that it would be suitable to change my mortgage provider at this stage? or would the likely cost of this reduce any benefits that I may get?