Your opinions please.

sarah111_2

Hi Fellow money savers,

My situation is this
I have morgage with the Nationwide of £164,000 with 27 years left, we are on the SVR of 2.99 at the moment paying back £678 which is great.
Our house according to the nationwide is valued at £178,000.

Now I am unsure what to do next, I phoned the nationwide to see about fixing our mortgage and disputed there valuation of £178,000, I said the house 2 doors down sold for £195,000 and my house has a conservatory and had work done on it to a high standard,
the very nice man on the phone took this valuation of £195,000 and offered us some fixed deals, I am unsure about fixing for 2/3 years so decided the best for us would be a 5 year fixed @ 5.89 payments of £987

So the way I see it is the Bank of England will be putting interest rate back up again but the big money question is when they will do this and at what speed.
The bank of England will need to be at 3.89% (which isn't a normal rate I know) for us to be paying £987 and we really cant affored any more than this, we are stretched as it is.

We have 2 chooses, stay on the tracker and hope and pray that they keep rates low for as long a possible and put the extra £300 into overpaying the mortgage getting the debt down, but also hope when the time comes to fix again we can get a decent rate, house prices have gone up and the nationwide will take my word for it that the house is worth the £195,000
or Fix now at 5.89 and do no overpaying.


What do you all feel is the right decision??? I know no one has a crystal ball and im not wanting you to tell me what to do. But I really would appreciate your opinions on our situation before we make this huge decision .

Thanks Sarah x

Thrugelmir

Interest rates when they ultimately rise will most likely have a negative impact on property prices.

Personally I would over pay the mortgage by £300 rather than fixing.
As even if rates do subsequently rise your capital debt owed will be lower.

Also I would suggest paying a visit to the MSE money saving boards. Analyse your expenditure and see where savings can be made. The mortgage debt only has to be repaid once. Making sizable inroads now will help you in the years to come.

opinions4u

If you can't afford a rate above 3.89% why did you take on the debt?

(While it sounds rather blunt, it's a question that is designed to identify what, if anything, has changed in your circumstances since taking on the original mortgage commitment).

we are on the SVR of 2.99

Are you sure it isn't 2.5%?

From what you've said, I'd stick with the overpaying route. But I'd split the £300 between overpaying and saving. Stick £150 of it in a savings account (e.g. Halifax ISA at 2.8%) and ringfence this money as "mortgage crisis fund". Then if rates do shoot up and your payments exceed £987 you will have a contingency fund in place to help you adjust to higher payments over a period of time, rather than overnight.

Just don't be tempted to spend it on anything else.

getmore4less

I am also a fan of the low rate overpay route.

Having said that you do feel you have a limit on payments so as has been said a full review of the finances is in order.

Consider posting a SOA even if you have done a review you may have missed stuff.
http://www.makesenseofcards.co.uk/soacalc.html

Your current deal
£164k 27y 2.99% £678pm

Calculator says £738pm so is this the current ballance and correct rate and term?

Are you sure you are on 2.99% the Nationwide old SVR(BMR) is 2.5% that would be a payment of £697 which is closer to yours but still a bit out.

REMEMBER if you are on the 2.5% BMR(base + 2% tracker) any new deals comes with the 3.99% followon rate so long term you can loose out.

5.89% the calculator says £1012 not £987 so there is a slight difference perhaps rounding up the debt and down the term

I will work with payments of £700 and £1k with 2.5% and your proposed fix of 5.89 and a debt of 164 over 27 years.

164/195 so 84% LTV you need to overpay £8k to get to 80%, a rate boundry for some lenders. with £300 overpayments thats around 1 year.
and that gets you a Nationwide rate of 5.49%

Lets look at the £164k with a £1k monthy payment on the 2 rates after each year( see below for what rate 1 and rate 2 mean.
year.........2.5%............5.89%.......rate1..... rate2
0........£164,000......£164,000
1........£156,009......£161,595........6.12%.......6.91%
2........£147,816......£159,045........6.52%.......8.12%
3........£139,415......£156,341........6.99%.......8.62%
4........£130,802......£153,473........7.55%.......9.17%
5........£121,971......£150,431........8.21%.......9.84%

So if rates stay low you could be up to £28k better off after 5 years

if rates stay low for a bit then the rate you can take before you have issue are as follows.
Rate1 : is the the rate that you would still pay of the loan with £1kpm and the same term.
Rate2 : is the rate that you would be no worse off than the fix after year 1 or the interest only rate for years 2-5 since you are allready ahead of the fix.

AS you can see the overpayment give you a lot of headroom on rate rises which can be a minimum of 3% rise in the first year.

Even if you factor in some rate rises the numbers will still look good for staying on the tracker. if rates rocket then a lot of people are in a lot of trouble so I see more gradual rises which supports the tracker overpay approach.

sarah111_2

Thank you all for your replies. I will def head over to the money saving board as you never know I may have missed somthing.

I must have got myself in a muddle we are on the 2.5 at the moment.
The rate we can go to is 5.89 so the bank of england will need to be 3.89 + the max 2% nationwide can add.


Thank you so much getmore4less for going into so much details it is very appreciated, I will sit down with my partner this evening and have a good think.

Its scary weighing up the risk my heart is saying overpay but my head is saying fix because even though a house 2 doors down sold for £195, a house up the road has just gone on sale for £165 and what if interest rates go past 6% in the next 2 years.

opinions4u

Thanks for the clarity.

If it was my mortgage, based on that, I wouldn't fix.

Get the right mix of overpaying and saving working for you asap.

Good luck.

valten

I’ve just applied for a first Mortgage and the fixed vs tracker debate is one I’ve been weighing up myself.

My mortgage is allot smaller than yours though, and I did my sums and I can afford my payments even if Interest rates hit as high as 7- 8%, though things will be tight. So ultimately I have decided to Track initially and plough the initial savings into overpayments, which will help me greatly in the long run. I also went for a mortgage with no fixed commitment or get out fees so I can switch to a fixed rate with minimum expense when rates start to creep up.

I’m must admit that I’m quite lucky as I’m only having to borrow 2.5x my income which gives me a large margin of error with regards to monthly payments, but everyone is different.

Good luck, I hope things work out for you.

getmore4less

sarah111 wrote: »

Thank you all for your replies. I will def head over to the money saving board as you never know I may have missed somthing.

Remember there are 2 figures you need to focus on.

You have the first one based on your analysis that around £1k.

When you look at hte rest of the spends there will be some that are discretionary so they could be reduced if you had to but you would prefer not to.

Thing like holidays,sky,mobiles etc add these up and that gives you the real absolute maximum you could throw at the mortgage if things got tight.

Also with a marging of round 4% allready built in with the £1k you will have time to addapt when rates start rising.

sarah111_2

Thank you

I have done my spreed sheet an added it to the debt free forum. fingers crossed.

Tabatha_Kitten

Also dont forget that with Nationwide you have the option to get back any of the overpayments you have made should you need to.
I have also stuck with the BMR and am also doing a 50/50 combination of savings & overpayments whilst keeping my eye on whats out there ready to jump as soon as I need to.

tidyfinance

Barclays 2.6 lifetime tracker (plus bank rate - 0.5%) is a leader at the moment.
And you can move to a fixed without penalty once rates move beyond a comfortable level.
Oh, and a £300 cash back to boot!!:j