To fix or not to fix now before Maternity & Voluntary Redundancy

billykeats

Hi

We currently on a 3 year fixed 5.69% Interest Only mortgage 90% LTV with Birmingham Midshires which finishes at the end of May 2011. We then go onto a variable rate of Base Rate + 2.44% which would make it currently 2.94%. This will reduce our monthly payments by £300.

We are about to have our first child in March and my wife is about to start her maternity leave at the the end of February. She works for the NHS and her office has been offered Voluntary Redundancy as they are relocating to an area that is not feasible for my wife to travel to. Due to her long term service she can expect a years salary of around £25K.

Have worked out that we could live off my salary at the reduce mortgage rate of 2.94%. My wife can be off for 1st year maternity and then on receiving the redundancy can make it stretch for up to 2 years. But if it was to go up then we could begin to struggle if the BofE increase it quickly.

Our dilemma is:
1. should we look to get another fixed rate for 3 years at what could be a similar rate to what we would be coming off as we would have 2 salaries to get a mortgage approved?
2. Do we go on the variable rate from June 2011 and stay on it but over pay the £300 reduction in monthly payments and hope that the Base rate doesn't go up to steeply?
3. With the help of family borrow the £25K due to get from my wife's redundancy, pay that as a lump sum off what we borrowed therefore reducing the LTV to 75-80% and then apply for a new fixed rate as my wife is still on maternity leave and not tell the bank that she is about to be redundant?
4. Go on variable rate, overpaying by the £300 a month hoping the base rate doesn't go up steeply and when my wife's redudancy money comes pay a lump sum off therefore reducing the monthly payments even more?

I am thinking of going with option 4 as I don't think interest rates will go up that steeply to quickly in the 1-2 years and if we start to struggle then my wife can look for local part time work. However my wife is worried and would like to get a fixed rate now at similar to what we are coming and therefore not benefit from the low base rate. Remortgaging is of course is not guaranteed or a possible option as the banks may not value the property at what we bought it for back in June 2008 which is around the peak

Will be seeing an Independant Adviser soon but would like views and possible advice before we speak to them

Let_Us_See

You really need to speak to a whole of market adviser as you have several options to consider. Personally, I would opt for a fixed rate, however, there are a number of lenders offering tracker schemes that allow you to change to a fixed rate (without charge) if interest rates start to rise.