Is this a good deal? 2.39% above base

Freddie_Mercury

Hi everyone. I am planning to change my mortgage from 4.99% with the alliance and Leicester to a 2.39 above base rate for life with the Northern bank which is offering £1000 cashback upon completion.
I have a mortgage of almost 50000 with 16 yrs left and am currently paying nearly £400 a month.
I was thinking of extending my mortgage to 25 yrs and paying £10000 once it's transferred. This would leave me with monthly payments of £187 and £40000 to pay off. Good idea or not?
Any help or suggestions would be greatly appreciated.

Spangled

First Direct are offering a base rate +1.89% lifetime tracker (assuming LTV of no more than 65%):

http://mortgages.firstdirect.com/mortgage-products/product/life-tracker-repayment~14

Base rate +2.39% may sound good now when the BoE BR is 0.5% - but you'd be paying 7.89% if the base rate went back up to 5.5% (which is what it was prior to the credit crunch). Can you cope with the increased payments? That said, your mortgage of £50k is (relatively) fairly low so increases in the base rate will affect you less than someone with, say, a £150k mortgage.

Final point - if you have £10k sitting around then an offset mortgage may be a good idea. You stick the £10k in an offset savings account which means your monthly repayments are reduced just as if you had paid off £10k of your mortgage - but crucially you have full access to that £10k (eg for emergencies). First Direct do offset mortgages too.

Lots to consider - good luck!

HappyMJ

Freddie_Mercury wrote: »

Hi everyone. I am planning to change my mortgage from 4.99% with the alliance and Leicester to a 2.39 above base rate for life with the Northern bank which is offering £1000 cashback upon completion.
I have a mortgage of almost 50000 with 16 yrs left and am currently paying nearly £400 a month.
I was thinking of extending my mortgage to 25 yrs and paying £10000 once it's transferred. This would leave me with monthly payments of £187 and £40000 to pay off. Good idea or not?
Any help or suggestions would be greatly appreciated.

Why would you want to extend the mortgage to 25 years? To pay £187 per month I think is madness. If you can afford it (and I think you can as you've saved up £10,000) then pay as much as possible off the capital and then in less than 10 years you will have zero monthly payments to make and much more money in your pocket after 25 years. I second the idea on an offset mortgage especially as you only want to make the minimum possible repayment.

ViolaLass

Freddie_Mercury wrote: »

. Good idea or not?

Depends. Do you NEED the monthly payment to be lower? Or are you under the illusion that that would save you money?

Freddie_Mercury

Thanks for the replies everyone. Ok, I am fully aware I will be paying more in the long run but in even 10 years time £200 a month will be worth a lot less than now. We now have two young children and I have given up work as an electrician to be a house husband and we get by on my wifes wages.
With the Northern Bank mortgage we can make overpayments whenever we want, so we could see how it's going in a year and plough some savings into it if that suited. We are comfortable enough as it is but I think we would be better off with an extra £200 a month now rather than 15 years down the line. I have looked into offsetting but the higher interest rate negates any benefit, we would be worse off and that's offsetting with £20000 savings.

Spangled

Freddie_Mercury wrote: »

I have looked into offsetting but the higher interest rate negates any benefit, we would be worse off and that's offsetting with £20000 savings.

What's your LTV? If it's less than 65% then First Direct do an offset lifetime tracker of base rate +2.09% which is cheaper than the deal you're being offered.

Freddie_Mercury

Spangled wrote: »

What's your LTV? If it's less than 65% then First Direct do an offset lifetime tracker of base rate +2.09% which is cheaper than the deal you're being offered.

This rate is .5% better than the Northern bank's but there are no bricks and mortar First directs in Northern Ireland and I like to deal face to face if possible. Do you think when the BoE rate rises the banks will be offering lower rates above base?
Remember with the Northern Bank deal I get £1000 cashback which will leave me with a bill of around £300 - £500 for moving mortgage which isn't too bad. The First direct deal seems very similar but would only save me around £15 a month.

Just noticed you wrote about an offset, I'll look into it.

Freddie_Mercury

first direct offset Mortgages are interest only mortgages. The monthly payments shown on the next screen will cover only the interest charged on your mortgage.
This payment does not cover an amount that you need to pay to a repayment vehicle. You are responsible for making your own arrangements to repay your mortgage at the end of the mortgage term
You must demonstrate that you have a suitable repayment vehicle in place. You may choose to use an endowment policy or another investment or savings plan.




I don't think this would suit us at all.

ginvzt

We have First direct offset lifetime tracker, and you can set the payment at what you want. Our interest only part is around £330, but we have a payment set up for £800.

Also - don't forget that the interest rates will go up - so the more you pay off from the capital now, the less interest you will have to pay when the rates are higher. It is not just that £200 will be worth less in 10 years time!

Oh, and there are no First direct branches around here wither, as far as I know (North West), but you can go to HSBC to pay in the money, etc. Anyway - they phone service is fantastic, best I have ever had from any company - bank or not!

getmore4less

but there are no bricks and mortar First directs in Northern Ireland and I like to deal face to face if possible.

I don't think there are any anywhere

First Direct is an internet/phone banking service part of HSBC.

Probably one reason they are cheaper.

ViolaLass

Freddie_Mercury wrote: »

first direct offset Mortgages are interest only mortgages. The monthly payments shown on the next screen will cover only the interest charged on your mortgage.
This payment does not cover an amount that you need to pay to a repayment vehicle. You are responsible for making your own arrangements to repay your mortgage at the end of the mortgage term
You must demonstrate that you have a suitable repayment vehicle in place. You may choose to use an endowment policy or another investment or savings plan.


I don't think this would suit us at all.

You think it wouldn't suit you because you'd have to make arrangements to pay off the capital? Just overpay - it'll come off the capital, problem solved. Where's the difficulty?