Please Help !!

pagey81_2

I currently have my mortgage through Cheltenham & Glouchester and my current deal is due to run out this month.

I have a mortgage of £99950 over 33 years and am currently paying £498 a month with a fixed rate of 4.79 %

I have just received a letter from them letting me know that my current deal is due to run out at the end of the month and if I don't choose a new fixed rate deal my mortgage will automatically go on to there SVR of 2.5 % changing my new payment to £370 a month so the difference is massive, I have spoke to them on the phone and can even shorten my mortgage to 30 years and can pay £391 a month.

In terms of fixed deals they have offered me a 3 year fixed for £499 a month on 4.79% so it has more or less stayed the same but still on the 33yr mortgage

My wife is currently not working as we have 3 young children so we are thinking that although the difference of £100 a month would be great and I get to reduce my mortgage term. Am I likely to suffer from the mortgage payments shooting up past the £500 mark if i stay on the SVR and shoot myself in the foot.

Or would you take the 4.79% for stability ?

Any help would be great

hcb42

Personally I would shorter the term even further at least down to 25 year term...but this depends on how you can deal with potential increases. But 33 years is a long time, and the interest paid will be significant.

Svenena

Or shorten to 30 years, but continue to pay the amount you are currently paying. This will have the effect of shortening the term, but still give you the flexibility to have a lower payment occasionally when needed.

Thrugelmir

The C&G SVR is guaranteed to track BOE base rate by +2%. So BOE base would have to increase by 2.5% for you to be in a worse position than opting for the 4.79% fix. The certainty is that BOE base will rise at some time. When no one knows.

In the early years of a mortgage a high proportion of your repayments consist of interest charges. The quicker that the capital element of the mortgage is repaid, the less interest you'll pay. Also the less impact future interest rate rises will have on your payments.

So at the current time if you were to move onto the SVR but maintain your repayments at the same level. Then you would be overpaying and reducing the capital balance on your mortgage by an additional £128 a month.

Personally I wouldn't recommend altering the mortgage term. As this leaving as it is still gives you flexibility should money become tight in the future.

The benefit of overpaying is that it will improve your LTV in the longer term. Should you wish to fix your mortgage a later date then better rates may well be available.

Only drop onto the SVR is you are comfortable with the risk. Though consider that interest rates will never be this level again. In 10 -15 years time interest rates will be normal again and mortgage rates could easily be 7%.

kingstreet

I also would not alter the term. This will make your contractual payments higher leaving you stuck with paying more if rates rise.

Make voluntary overpayments (to reduce the balance/term) of as much as you can for as long as you can and adjust these if rates rise so you are always paying as much as you can afford.

You don't say how old your children are, but there will be scope to pay more when you are both working again and your children are at school, so you needn't treat the long mortgage term as a big potential problem now.

In addition, you may also decide you want to move at some point and the overpayments you make now will buy you a shorter term later.

magpiecottage

A fixed rate WILL give you the security of knowing what you will pay but they are not simply giving you the rate out of the kindness of their hearts.

Somebody, somewhere, thinks they will get a better return lending at a fixed rate than at a variable rate. A fixed rate is rather like insurance - and you pay a premium for it.

So you must decide whether you want to pay the premium or take the chance.