Early repayment - help

em1701

I would normally go to my father for advice on this but he is very ill.

My house has a mortgate £118k got 2yrs left on fixed rate at £600pm and think rate is 6.69%, rung halifax earlier to enquire about options as having a baby and gonna struggle a bit.....

They werent overly helpful but what is did find out was to get out of my fixed rate is £1188 and then a variable rate i would be paying £355 per month so in approx 5months would have cleared off the early rep fee and then be paying £245 less each month. I would have to take early repayment fee from my isa but would standing order the £245 back to it each month.

I know my mortgage on the house is nearly as much as worth so prob struggle going elsewhere i think but if did the early repayment with current rates do this look like a good idea, i supose i am asking if mortgage rates are set to go up soon and if i would end up back at £600pm.

Thanks in advance

TrickyDicky101

Over what term is your mortgage and is it a repayment or interest only mortgage?

em1701

I took mortgage June 2008 over 25yrs, intrest only

TrickyDicky101

Because it is interest only, it is very sensitive to interest rate movements - each 0.5% increase in the rate will increase your monthly payments by £49.17. That would mean that you would need to see the variable rate increase by around 2.5% from its current level for your payments - if on the variable rate - to approach that of your current fix. However, you also need to consider what is meant by the "variable rate" that you would go on to - is it linked to the Bank Of England Base Rate (currently 0.5%) or an arbitrary rate set by the bank itself - the former gives you certainty it will track the BoE base rate whereas the latter gives no such guarantee at all (so increases in your rate may happen even if BoE Base Rate doesn't rise at all).

On top of the above, you may also have the problem that you have no repayment vehicle for this loan in place? You didn't mention if you were saving into eg an ISA to pay off the loan eventually, but it will eventually become due and it could be considered risky to rely on the effects of inflation to reduce the real value of this debt.

em1701

To be honest once back at work in Jan i would happily move to repayment anyway if of a simular amount of my current payment £600 so this would only be short term plus i have more than my mortgage in trust that i will get one day, the money in my isa is what i get yrly from the trust.

TrickyDicky101

It's important you do establish exactly what variable rate you would move to (ie the terms of it - it is linked to BoE Base Rate). Then you can make an informed decision. Assuming you are prepared to take the risk of interest rates heading upwards, it sounds like the variable rate *could* be a good idea.

em1701

Thank you, youve been really helpful :T