Mortgage fixed rate question

sancho

Firstly apologies for what may be a daft question.

We bought our first house nearly 2 years ago. We fixed the rate for 3 years. Obviously the rate and amount was worked out on our income. Since then we have had a baby and my wife works less hours than she did when we got the mortgage. The household income was roughly 30k and is now roughly 24k

We have had no problems paying the mortgage and still manage to save a little. When our fixed rate ends how does it work? Will we automatically be able to get a new fixed rate, either with the same company or another. Or will it be on our earnings like when we first got it

The house is worth roughly what we paid for it, so my worry would be that if we earned then what we earn now we probably wouldn't have got the amount we needed.

Does any of that make sense?

Thanks if anyone can help

Thrugelmir

Despite your change in circumstances your existing mortgage is secure. Providing you meet the LTV criteria for example. Then switching onto a new fixed term product isn't an issue.

If you wish to remortgage with a new lender. Then you will need to complete a new mortgage application and meet all the lending criteria. Which in your case you may not, with a fall in income and a dependent that will affect the affordability calculation.

No question is ever daft. We all start this life with no knowledge.

originalmiscellany

... and Thrugelmir is almost always on the money in terms of what he (?) says!

To make it easy for you, I'd be saving as much as I can in order to clear what I can, so the LTV (loan to value) is at a decent rate - where a 100k property with a 75k mortgage has a LTV of 75%. The better deals are available at a 75% or lower, as it means you owe more of the house and are a safer bet.

Also with mortgages, it's often frustrating as in the first few years you really only pay off interest, rather than capital (value of the house). That's why any overpayment you can make in the early stages is SO important.

sancho

We had a 25% deposit, so already have a reasonable ltv.

I'm just pleased we'll still be able to fix it, presumably just limited to the nationwide (my current mortgage provider)

Would over paying by 50 per month be of any use to me? Or is it worth doing more, It's such a vast amount of money (100k) that over paying 50 pounds a month hardly seems worth it

Thrugelmir

sancho wrote: »

I'm just pleased we'll still be able to fix it, presumably just limited to the nationwide (my current mortgage provider)

Would over paying by 50 per month be of any use to me? Or is it worth doing more, It's such a vast amount of money (100k) that over paying 50 pounds a month hardly seems worth it

Don't be hasty to fix. Check what rate you will default onto once your fix term ends. As it may be beneficial to remain on the SVR.

Over time the overpayments will mount up. As the balance reduces you will pay less interest. Think of it like rolling a small snowball over time it will grow and grow in size.

Possibly staying on the SVR will allow you to overpay slightly more than the £50 you suggest.

Thrugelmir

originalmiscellany wrote: »

... and Thrugelmir is almost always on the money in terms of what he (?) says!

And I still learn something new everyday he says.

sancho

I did think that. Obviously no one really knows what the rates will do, with hindsight we should have just fixed for 1 year. I do like the feeling of knowing how much we will be paying out and not have to worry about it going up.

I might look at over paying 100 pounds per month, just doesn't seem like it will make much of a difference. Is there some sort of calculator out there?

neverdespairgirl

If you have a £100k mortgage over 25 years, say the average rate you pay is 5% over that time.

If you make overpayments of £50 a month, you pay £634.59 a month instead of £584.59 a month, and thereby save 3.6 years off the mortgage and a total of £12,252.71 over that time.

If your rate is 4% instead of 5%, and you still pay £50 extra per month, you pay £577.84 a month instead of £527.84 a month, and save 9,010.07 over the time.

If the rate is 5% average and you overpay by £100 a month, you pay £684.59 a month and save £20,921.63.

If the rate is 4% and you overpay by £100 a month, you pay £627.84 a month and save £15,533.80 and 6 years off the term.

Thrugelmir

sancho wrote: »

I did think that. Obviously no one really knows what the rates will do, with hindsight we should have just fixed for 1 year. I do like the feeling of knowing how much we will be paying out and not have to worry about it going up.

I might look at over paying 100 pounds per month, just doesn't seem like it will make much of a difference. Is there some sort of calculator out there?

A link to an overpayment calculator.

http://www.whatmortgage.co.uk/mortgage-calculator-what-if-i-over-pay-my-mortgage/

With regards to the impact overpayments. Think of it as running a marathon not a sprint. The end result is well worth having.

sancho

I suppose It's weighing up being 100 pounds per month 'down' now, when we arguably need it more than in 30 years time we'll have a cheaper/shorter mortgage.

Based off what next doors house went for I think the house is worth 150k or so and our mortgage is 100k or so. Is that a decent ltv?

Thrugelmir

sancho wrote: »

I suppose It's weighing up being 100 pounds per month 'down' now, when we arguably need it more than in 30 years time we'll have a cheaper/shorter mortgage.

Or possibly think about retirement savings at that point in time.