Is this a good deal?

ness_w

My building soc has written to me offering 3.99% fixed for 5 years. After that it would revert to tracking base rate at +0.95% with a floor of 3.45%. There would be no charges and no early repayment fee. Currently my mortgage tracks at +0.95% so I am paying 1.45% interest. We owe about 70,000 and have 15 years left. I am interested because I have had mortgages long enough to realise that a return to the low rates we have now is unlikely and so the fixed rate may offset future higher rates, but OH thinks they are possibly a bit too keen to offer this deal to us.

Does this seem like a good deal? Is it one you'd be interested in?

We could afford interest rates to be quite a lot higher but would obviously prefer to pay less in total. We have about £10,000 in savings, but had planned to keep this for a rainy day rather than pay this as a chunk off our mortgage.

theduke2011

Sounds like a good deal @ 3.99%, and rate like that for 5 years sounds very competitive. I would say please check any small print and watch out for big arrangement fees and extended tie ins after you finish your fixed rate. alternatively, you may wish to consider an offset mortgage due to the amount you have in savings. if your mortgage is 70k and you have savings of 10k, you could offset the savings (whilst still retaining instant access to your funds) and only pay interest on the remaining 60k that left. a good way of utilising your savings, especially considering returns on savings are so low at the moment. most offset mortgages are variables rates, however there are some lenders out there offering fixed rate offset mortgages
hope this helps.
Regards,
D

ness_w

Thanks, the mortgage offers an offset facility and there's no arrangement fees at all. I could get the illustration offered and see how it works out.

BlueC

Yes its a very good deal I would say. I can't find anything fixed for 5 years for less than 4.59% (First Direct) at the moment and most are considerably higher. End of last year there was a 3.89% deal with FD but that went in January.

I'm wondering who your BS is? I might ring them!

Edit: I should qualify this by saying I am buying not re-mortgaging and can only look at 65% max LTV. Also, i don't want to pay £1000 arrangement fee.

If you compare your offer here it looks very competitive:

http://guardian.lcplc-online.co.uk/bestbuy.aspx

ness_w

Hi BlueC, it's an offer for existing customers only, I'm afraid. It's the Hinckley and Rugby who have been very good lenders for us. I'm not sure what their deals for new customers are.

The only thing that slightly concerns me is that, whenever I've looked over the years, I've never found a mortgage to beat the one we have now, I am a bit worried that we'll regret the 3.45% floor after the 5 years are up. I guess I should look at historical rates. Is there a website that shows them?

BlueC

Thanks, I checked and they don't have any fixed rate deals for new customers !

After 5 years can you move to a different product without a penalty? If so then I wouldn't worry about the 3.45% floor that it reverts to after 5 years. You're on a great deal now provided the BoE rates stay low so taking a fixed rate is going to be a gamble, but it could pay off and at least it removes any uncertainty.

Good luck!

Meeper

Confronted with that choice, I would take the offer. However, my circumstances are different to yours and the important thing to consider is whether you feel you would benefit from a fixed rate or you are happy on the existing variable rate which will see your payments increase over time.

Personal preference, but I would take it.

Thrugelmir

The H&R are trying to up their own profit margins in the short term. While also introducing a floor into the contract. Thereby moving you away from what you already have.

As you've a 2.5% margin between what you pay and whats on offer. I would pay the mortgage as if it was 4.0%. Thereby overpaying every month. As interest rates progressively rise then absorb the increase.

On a mortgage balance of £70k. Making overpayments will sound start making inroads into the capital balance. Meaning the day of being mortgage free will get very much closer.

My mortgage is with the H&R and its very easy to set up a standing order to make the overpayment.

OP2011

If the tracker element after the 5yr fixed is for the life of the mortgage I would go for it.

If it isn't and your current tracker is for the life of the mortgage I would stay put and set minimum payment to around 4% as mentioned previously.

With regards to your £10k savings - perhaps find out the conditions on lump sum payments and taking them back out again, maybe with just £5k of it??


"Does this seem like a good deal? Is it one you'd be interested in?"

Your original question - I think depending on tracker lengths that they are both fairly good deals.

The fix has the edge if you are worried about rates climbing over the 5 yrs and 3.45% is still historically competetive.

Your current product has the edge if you feel rates will stay below 2.5% - which while possible, may be less likely.

Good luck - I don't think your going to go too far wrong either way.

dimbo61

You are on a great rate now and thats why your lender wants you to take the fix!
But thats also a GOOD long term fix and if its an offset mortgages thats an even greater deal.
Can you afford to overpay or build up savings in the offset account ?
Can you afford for rates to rise 2/3% in the next 5 years

getmore4less

The base + 0.95% is good and will be hard to better.

At least they are still giving you this long term allthough capped which is much better than most other lenders options.

The trade off is more cost now against savings when base rates go significantly over 3.04% in the next 5 years and stay above 2.5% after 5 years.

Looking at some numbers
£70k 15y @ 1.45% £433pm
£70k 15y @ 3.99% £518pm
paying the 1.45% @ £518 will overpay looking at the amount owing after each year if the rate does not go up and the rate required to break even after
....fixed............tracker..........break even rate
1.£66,809.56......£64,764.30.....4.8%
2.£62,885.73......£59,452.17.....6.18%
3.£59,110.32......£54,062.50.....8.98%
4.£55,181.49......£48,594.16.....12.79 (I/O)
5.£51,093.01......£43,046.00.....N/A

The longer the rate stays below 3.04% the higher they have to go to be worse off.

If I was looking at this I would run the numbers for a rise this year say around 1.5% with another rise of 1% in year 2 and see what the rates need to got after that.

I think thye have pitched this about right to temp people of the tracker and limit their future liability.

If rates don't move up that much look at what the overpayments do to the debt, up to £8k saved over the 5 years.

Does your current deal have the offset facility? (not that you need it yet there are better savings rates).