Offset FD 2.59 vs Newbury 2.99 tracker for life

eldaniel

Hi all,

I need an advice. I am with Nationwide 5.98% and quiting from fixed (until end of 2012) will cost me £2900, but with current rates it will still pay off!
I have £70000 left on a flat worth £12000, which gives me LTV less than 0.60. I am overpaying maximum £500 a month (which I am allowed to), but still have some money left every month to save.
I can't decide which one will be better FD or Newbury.
FirstDirect 2.59% tracker for life (I will repay in under 7 years), where I can use every single penny saved to offset mortgage, but there is no certainity how long base interest rate will be low. Costs are £350 of taking it + some legal costs, so probably under £1000 together.
Second option is Newbury 2.99% 5 years fee free dicount. It is says The initial variable interest for the first 5 years is: 2.99%changing to our SVR, for the remainder of the mortgage, currently:4.45%.

Does it mean that 2.99% is guaranted for 5 years? or it is just for the start because it is as it says variable. and lets say after few months they can increase it?
Cost of taking Newbury is very low (max. £200 if I wont qualify for free valuation).
Newbury has option to overpay 10% of outstanding mortagage every year.

Which option to choose. Any advice appreciated!
Many thanks
Daniel

cake21

eldaniel wrote: »

Second option is Newbury 2.99% 5 years fee free dicount. It is says The initial variable interest for the first 5 years is: 2.99%changing to our SVR, for the remainder of the mortgage, currently:4.45%.

Does it mean that 2.99% is guaranted for 5 years? or it is just for the start because it is as it says variable. and lets say after few months they can increase it?

I presume you mean this Newbury mortgage; the "variable" means that it will start at 2.99% and they can change it by however much they want whenever they want. But it would always be at a lower rate than their "normal" variable rate, hence the "discount". Hope this helps.

Personally I wouldn't assume that they would increase their rates by less than the base rate, hence I'd go for FD, but then I'm too cautious for a variable/tracker anyway so probably best to ignore me

eldaniel

Ok, so with this in mind that discounted in reality is closer to tracker than to fixed I am definitely not going to take it.
I am going for First Direct offset 2.09%+base rate for term.
No ERC, unlimited overpayments etc.
Now the question is what term to choose. Please help me with that.
At the moment we pay £1243/month. But we thinking about the baby so we dont want to pay that much anymore as circumstances may change.
We want to take mortgage of £75000 and we are thinking to choose between term of 7 years or 9 years (this is my main issue - what term to choose).
On 7 years term our monthly payment will be (I will round it up to make it clearer picture) £980 where £820 is capital £160 interests as of first month.
On 9 years term our monthly payment will be £780 where £620 is capital and £160 interests as of first month payment.
The difference is £200 a month.
Now...If I choose 9 years and pay £780, but will put this £200 difference every month on a saving which will offset my mortage would that be equal to taking 7 year term assuming that I will use my savings to pay off my capital after 7 years??
Because that is the way I see it, I tried to explain it to lady at FD, but she said no, but I am not sure if she unterstood what I actually meant.
Basically. Am I right that taking longer term is better? Because if I save every month the difference between 2 terms I think it would be exactly the same, but I will have more security knowing that I am commited to £780 a month instead of £980.
Hope you guys understand my point. I cant find a calculator anywhere which could show the difference between 2 different terms of offset mortages.
Many thanks for your help in advance!
Daniel

uzubairu

You are better of with the lower payments and saving the difference elsewehere with a higher rate.

We were with Nationwide and fixed until 2016, but we were finding that we coudn't reduce the term below 2016, we were exceeding the overpayment limit each month.
We paid £2K in ERCs and hopefully the gamble will pay off, especially since we can overpay without limit and the current rate is 2.29% instead of our previous 4.79%.

When we re-mortgaged to First Direct in August, we chose a term of 12 years, even though we hope to have paid it all off in 4.
So our monthly payments are £582 and we make overpayments (£1,200) into several Regular Savings accounts paying between 4% and 8% gross.

It's always better to give yourself some leeway, so we didn't commit to a standard payment of £1,800.
I opened an 8% Regular Savings account with First Direct today, so that could be a home for your extra £200 each month.

eldaniel

Exactly Uzubairu, that is the way I think as well. But I was trying to ensure that this is the case over the phone yesterday and mentioned above conitions to the lady about saving the difference. She said that it is not going to be the same in terms of interests paid throughout the whole life of the mortage, if I take longer mortgage. I had impression that they want me to take shorter term so I will repay more every month, but shorter term means less likely to get a mortage as our affordability may not be so great if we choose less years.
So it looks like even if I choose lets say...12 years term I will still be able to repay it within 7 years (or even quicker) if I save the difference and I am very good with saving She said that application has been sent and I have to fill it in and state there for how many years I want the term to be. I said I am thinking about 9 now, and she said she will put a little note under my application that I am thinking about 9 years term now. I wonder why she said that if it is up to me how many years I put on application.
Thank you

LilacPixie

FD have just launched a new regular saver at 8% gross I believe if you have a 1st current account or something. sole account holders only. I wondered if you each opened and account and saved the maximum £300 a month plus OPing on the nationwide mortgage if that would be more money saving than paying the ERC to get out of your nationwide deal.

It's too early in the morning for me to do the Math though, my brain just hasn't switched on yet.

michaels

Would you qualify for the new natwest 1.99% 2 year tracker? 1k fee reduced to 500 if you open a £13 per month current account (can probably downgrade after 12 months!) even with the fee this will probably still save you quite a bit over the 2 year term.

JoeA81

You are exactly correct in your post #3. But why limit it to a 9 year term? If you are going for the FD offset mortgage then why not just go for a really long term? - The longest they will offer you?

You can set your monthly repayments to whatever you want, and overpay whenever you want, or just leave it all in the linked offset accounts, so you can pay it off much quicker than you set your term for. But should the absolute worst ever happen in terms of loss of income, you will be able to drop down to a much lower monthly payment.

I'm just about to get a FD offset, and I set my term to 30 years. But my overpayments/offset savings etc will ensure it will be paid off well before then!

The whole point of an offset is flexability, so why limit your flexibilty with a short term?