Remortgage dilemma - advice sought

MortgageFreeASAP

Hi everyone

Have lurked as a newbie on this forum and have read lots of posts but can't quite reach any conclusions so your help would be much appreciated.

We currently have a mortgage with Natwest which has reverted to an SVR of 4%. We are looking to change this mortgage deal and are unsure exactly which way to go.

The o/s mortgage amount is £117000. The house is worth around £350000 so low LTV. Of the mortgage amount, £50000 is on interest-only and the remainder is on repayment.

We have an endowment policy that is due to mature in September 2012 - not sure of the value but expect it to be in the region of £36000 (was originally supposed to be 61000). We would obviously pay that off the mortgage immediately.

We have always had fixed mortgages in the past because we like the security of knowing what we're paying. Our inclination now is to convert the whole mortgage to repayment and fix for 5 years. For the fix, we can get 3.95% over 5 years with £199 arrangement fee, remaining with Natwest.

We've never overpaid before and have really just paid our mortgage mindlessly but have seen the light having lurked here for some time and are keen to start overpaying. For the Fixed mortgage the max that can be overpaid per year without penalty is 10% of o/s mortgage balance. This is more than we could overpay in the next couple of years at least (probably for the whole 5 years) so it would not affect our overpayment plans.

What I'm not sure about is whether this is a good plan or not. The fixed rate of 3.95% is higher than a tracker would be right now, but I am working on the assumption that interest rates will go up and be higher than the fixed rate for maybe 3 of the 5 years. Of course, this is pure speculation. We don't have much savings (something else we are working on) and so are keen for the security of a fixed payment.

We've not been terribly savvy with money in the past and are not sure what to do for the best. I know no-one can say what way interest rates will go but I'd be keen to hear anyone's views on this.

Many thanks for reading.

CloudCuckooLand

MortgageFreeASAP wrote: »

We currently have a mortgage with Natwest which has reverted to an SVR of 4%.

We have always had fixed mortgages in the past because we like the security of knowing what we're paying.

For the fix, we can get 3.95% over 5 years with £199 arrangement fee, remaining with Natwest.

Makes sense. Decent rate for 5 year fix. Low fee helps. To beat the SVR and be secure in what the payments will be for 5 years is, to me, a no-brainer.

Yes, you might save a little for 6-12 months by taking a Tracker, but the decent Fixed deals will disappear before you know its time to fix.

If you do find yourself able to overpay more, just save it in an ISA until the end of the deal. A decent emergency fund is a good idea, anyway.

Wh05apk

What will you do with the funds from the endowment next year?

MortgageFreeASAP

Wh05apk wrote: »

What will you do with the funds from the endowment next year?

The endowment will go straight off the mortgage. The guy I spoke to at Natwest said no repayment penalty is incurred if an overpayment is an endowment. However, this is when I was mulling over leaving a proportion of the mortgage as interest-only. I am unsure of the consequences if we move the entire sum to repayment - I need to check again with NatWest.

If changing it all to repayment means that the endowment money incurs a repayment penalty, then we'll just leave a suitable proportion on interest-only, the rest on repayment and fix the lot at 3.95%. That's the current plan anyway.

destry

Hi there, I sympathise with your dilemma, but it is worth remembering that even if you are not very money savvy, the banks are! The fixed rates they offer reflect their best guess about how interest rates will change over the fixed period, with a bit of padding for themselves. If you choose the very best offer you can find, you will be going with a bank that thinks rates will stay on the low side. You can't do better than that, however much you worry about it. You may win a bit or lose a bit, but if the fixed option appeals - and why shouldn't it? - then steam in.

Wh05apk

If you switch all to repayment, you will only be allowed 10%, if you have £36,000 on i/o, you can repay that with the endowment, if there is any surplus, it will come out of your 10%, I suspect that will be more than enough for you to want to repay?

MortgageFreeASAP

Wh05apk wrote: »

If you switch all to repayment, you will only be allowed 10%, if you have £36,000 on i/o, you can repay that with the endowment, if there is any surplus, it will come out of your 10%, I suspect that will be more than enough for you to want to repay?

So you are saying the sensible thing to do would be to keep an amount on interest-only that is a little bit less than what we think the endowment final value might be? Any surplus could go against the repayment part of the mortgage, which will not exceed 10% of the balance so no penalties to pay.

Whatever way we do it, we intend to keep the mortgage repayment amount the same (or higher if we can afford it) after the endowment money has been paid, so that we are overpaying by a reasonable amount. Then we find ways to increase our overpayments.

Having discussed it further with OH today, we are both keen for the security aspect of a fixed rate (I had been looking at a tracker as well).

Wh05apk

MortgageFreeASAP wrote: »

So you are saying the sensible thing to do would be to keep an amount on interest-only that is a little bit less than what we think the endowment final value might be? Any surplus could go against the repayment part of the mortgage, which will not exceed 10% of the balance so no penalties to pay.

Whatever way we do it, we intend to keep the mortgage repayment amount the same (or higher if we can afford it) after the endowment money has been paid, so that we are overpaying by a reasonable amount. Then we find ways to increase our overpayments.

Having discussed it further with OH today, we are both keen for the security aspect of a fixed rate (I had been looking at a tracker as well).

Yep sounds about right