Catch 22

andys15

Well I have just had a chat with my mortgage company. Just to see what they would do regarding affordability if I got the new loan. If I stay with BAnk of Ireland, they dont actually do anything credit score wise. I didn't realize that the mortgage I am on will revert to 1.49% above the BOE rate for the life of the mortgage. I assume this is a good mortgage to be on, although I do like the assurances a fixed deal can bring.

When_is_the_reset?

Paid £65k a year and with a household income of nearly £100k, guaranteed 8% rise per year......

and you can't figure some of this out yourself?

Do you work in the public sector or something?

andys15

When_is_the_reset? wrote: »

Paid £65k a year and with a household income of nearly £100k, guaranteed 8% rise per year......

and you can't figure some of this out yourself?

Do you work in the public sector or something?

Cant figure what out exactly. The forums are used for advice, almost devils advocate.
No I dont work for the public sector, nor do I work in finances. I am just asking questions, to get pros and cons to the situation I face. I have no idea what my salary has got to do with it. I am on my salary with bare minimum of GCSE's, and no higher learning qualifications, as is my wife. So my grammar and spelling and my ability to "figure it out" myself may be slightly impaired, but I still get my payslip at the end of every month.

Perhaps I am on my £65k a year salary with "guaranteed" 8% increase, because I do ask questions, and seek advice. Also I stated generally 8% not guaranteed.

blueberrypie

andys15 wrote: »

Well I have just had a chat with my mortgage company. Just to see what they would do regarding affordability if I got the new loan. If I stay with BAnk of Ireland, they dont actually do anything credit score wise. I didn't realize that the mortgage I am on will revert to 1.49% above the BOE rate for the life of the mortgage. I assume this is a good mortgage to be on, although I do like the assurances a fixed deal can bring.

I did ask you what rate your mortgage reverted to - in my first post on this thread, the second reply you received to your initial query, and in the first sentence. The information above is *exactly* why I asked that. And to be honest, in reading through the thread, it does seem likely that you didn't answer because you weren't interested in hearing good advice - only bad advice that fits with what you want to do.

If you are moving onto BR+1.49%, you are on a very good rate indeed - the BR is currently 0.5%, so you'll be paying 1.99%. Your contractual monthly payment will drop - probably by several hundred pounds.

However if the base-rate increases - and it will eventually, although when is anyone's guess - your mortgage payments will go up. At 1.99%, there is absolutely no point in you over-paying your mortgage - it makes far more sense to save whatever you can at the best interest rate you can find. A fixed rate does, as you say, give security - but 1.99% is a damn good rate, and it's well worth staying on it until base rate starts to rise or you can find a fixed rate that is good enough to compete.

You could, of course, use the money you no longer have to pay on your mortgage each month to service a loan for home improvements - but if the base-rate goes up, you will then have to find both the money to pay for your home improvement loan *and* your increased mortgage payments. It would be far more sensible to use the time while base-rate is so low to get debt-free and take a few steps on the journey to mortgage-free.

andys15

blueberrypie wrote: »

I did ask you what rate your mortgage reverted to - in my first post on this thread, the second reply you received to your initial query, and in the first sentence. The information above is *exactly* why I asked that. And to be honest, in reading through the thread, it does seem likely that you didn't answer because you weren't interested in hearing good advice - only bad advice that fits with what you want to do.

If you are moving onto BR+1.49%, you are on a very good rate indeed - the BR is currently 0.5%, so you'll be paying 1.99%. Your contractual monthly payment will drop - probably by several hundred pounds.

However if the base-rate increases - and it will eventually, although when is anyone's guess - your mortgage payments will go up. At 1.99%, there is absolutely no point in you over-paying your mortgage - it makes far more sense to save whatever you can at the best interest rate you can find. A fixed rate does, as you say, give security - but 1.99% is a damn good rate, and it's well worth staying on it until base rate starts to rise or you can find a fixed rate that is good enough to compete.

You could, of course, use the money you no longer have to pay on your mortgage each month to service a loan for home improvements - but if the base-rate goes up, you will then have to find both the money to pay for your home improvement loan *and* your increased mortgage payments. It would be far more sensible to use the time while base-rate is so low to get debt-free and take a few steps on the journey to mortgage-free.

Ok now I am confused. I was going to throw everything at my mortgage whilst it is on a good rate. I appreciate I will get a better saving rate but how do I manage to pay the savings onto my mortgage before the mortgage interest rates shoot up. I could afford to pay my £218000 in 8.4 years based on 1.99%.

blueberrypie

andys15 wrote: »

Ok now I am confused. I was going to throw everything at my mortgage whilst it is on a good rate. I appreciate I will get a better saving rate but how do I manage to pay the savings onto my mortgage before the mortgage interest rates shoot up. I could afford to pay my £218000 in 8.4 years based on 1.99%.

When interest rates rise, it's simple enough to take your savings and put it on your mortgage. Your mortgage interest is almost certainly calculated daily, so getting the money onto your mortgage *before* a rate-rise is no big deal.


Okay, let's say you have £100 to spare.

If you pay it towards your mortgage today, you won't be paying interest on that £100 from now on. Over the next year, that will save you £1.99.

If you put it into an account where it earns interest at 4%, it will earn £4. You have to deduct income tax from that, of course, unless it's in an ISA, where the interest is paid tax-free. But let's say, for the sake of simplicity, that it can earn 3% after tax is deducted.

So at the end of a year, you take your £103 (your original £100 plus the £3 interest) and you put it towards you mortgage - you've now paid £103 off your mortgage instead of £101.99.

It doesn't like much, but a) if it's 10 times £100 you get 10 times the benefit, and b) that £103 is also going to work for you every day until the end of your mortgage - and the interest you don't have to pay on it is going to be bringing your mortgage balance down, and the interest you don't have to pay on that interest, and so on.

Is that all clear?


If the base-rate rises enough that your mortgage is now costing interest of more than 3%, you remove your money-that-was-earning-3%-up-to-today from the savings account and put it towards your mortgage.

In other words, you get that £100 to work as hard as it can. If it's making more as savings than it's costing you in your mortgage, you keep it in savings. When the mortgage rate becomes higher than your interest-earned rate, you put it towards your mortgage.

The only difficulty that not knowing when the base-rate will rise is that you don't know when to take out a new mortgage at a fixed rate, but the best fixed rate you'd get now would be substantially higher than the tracker rate you'll go onto in April.

Of course if rates go up a lot before April, you get overpaying that mortgage (but other debts first, if they are at a higher interest rate!)

andys15

Many thanks for that post.

It does make sense as long as I can withdraw my savings without penalty, plus I am a high rate tax payer. My one and only problem with doing it that way, is self discipline. Assuming it stays at 0.5% my mortgage repayment will be £433 less. On top of my overpayments that will be £1500 I can save per month. That will be £18k in my bank earning interest in a year. It will be so hard to have that much money in my account each month, without dipping into it, where as giving it straight to my mortgage will not enable me to do it.
Writing it is different than actually doing it.

blueberrypie

If you don't think you can leave it in the bank without spending it, it might be better to put it towards your mortgage and accept that it just isn't going to work as hard for you as it might have done.

Better to recognise your limitations now than regret them later.

andys15

I have friends who actually had tracker rates below the BOE rate, and they did have the best will in the world to save and put towards the mortgage, but instead it has been spent. If I do find myself in the fortunate position of a low interest rate in April(although knowing my luck the BOE will rise by 6% before then), I will take full advantage. I have decided I am going to do the kitchen and renovations. I am yet to choose the length. I have always taken loans for no longer than 2 years in the past, although I might take it out over 5 or even 10 years. It goes against everything i have ever done to pay so much interest, but it works for me, and the interest I pay each year, will be covered by pay rises.