Ten year fixed rate mortgage mistake

Lou49_2

Hi, three years ago I took out a 6.5% fixed rate for 10 years repayment mortgage. There is a £5000 penalty for opting out of this mortgage before the 10 years are up.
At the time this seemed like a good idea as I remembered the days of 15% interest rates during the last conservative government and it seemed a "safe" way of controlling how much I paid over a long period of time.
I was not to know interest rates would be so low for such a long time and I have been paying hundreds of pounds each month over what I would have been paying had I been on a standard variable rate repayment mortgage. This has been most unfortunate as my husband was a couple of years out of work and we really struggled to make ends meet on my salary alone.
He is now working full time again so we can afford the mortgage repayments however I am sure we can get a better deal even with the £5000 penalty.
However, I really do not know what to do for the best, on the one hand I know exactly what I am paying every month even if it over the odds, I don't plan on moving over the next 7 years unless we become unemployed again and I don't have a crystal ball to tell me whether interest rates will go up beyond 6.5% during the next 7 years.
So my question is stay put or pay the penalty and opt for a lower interest rate mortgage?
I have £86,000 equity in the place and the current mortgage will be paid off on the date of my retirement in 15 years time so I don't want to take out a loan longer than 15 years. My current repayments are £650 a month.
I'd really like to free up some cash to put into savings and not into paying a (currently) high interest rate mortgage.

gnasher18us

You haven't given enough information to answer your question properly.

You should ask at the bank or building society which have a good deal on tracker mortgages (or a good financial advisor) to see if it would be worth you changing the mortgage (£5000 is a hefty penalty).

There's a lot for you to factor in as well.

Interest rates over the next year are likely to rise approx 1 - 2% (you can never be totally sure and it's a bit of a gamble).

There's also the option to "overpay" your mortgage which will make you own more of your home, thus bring the debt down on which you would pay interest on (overpaying would reduce your amount of interest, simply because you would not have as big a debt on your home).

If you have savings that you can plough into the current deal that would be a good option also.

M271

Depending on your circumstances there are 5 year fixes around from 3.5% with set up costs of between £500 to £1500 and 10 year fixes from 4.59%.

You need to do the maths as I don't know your mortgage details but I would have thought that you would easily save your current mortgage £5000 exit penalty and the new mortgage set up fee during the new 5 or 10 year period.

gnasher18us

... I wouldn't fix the rate unless you need to have a fixed rate for budgetting purposes, although M271 has mentioned some good "fixed rate" offers.

Banks give fixed rate offers such as these because they are pretty confident of making more money by doing so.

M271

gnasher18us wrote: »

... I wouldn't fix the rate unless you need to have a fixed rate for budgetting purposes, although M271 has mentioned some good "fixed rate" offers.

Banks give fixed rate offers such as these because they are pretty confident of making more money by doing so.

I only used the fixed rates as examples because the person is already on a long term fixed rate and also it makes it easier to compare over those time periods than variable linked rates. There are of course many other types and fixed rate period of mortgage available.

Lou49_2

Thanks for all your thoughts and advice. I've got an appointment with a mortgage broker next week to discuss all the options. My feeling is that Santander did not give us good advice when we took this mortgage out and still maintains it was a good deal and we shouldn't switch, I have a feeling this is because they are making money out of this deal. I'm getting some independent advice and will decide then.
Trouble is 5 grand is a lot to lose soI have to be really sure I'm going to get this back and in todays market nothing is certain.

opinions4u

I was not to know interest rates would be so low for such a long time

My feeling is that Santander did not give us good advice when we took this mortgage out

So was your mortgage adviser meant to be able to predict what was going to happen to interest rates? I don't think many economists had a clue, let alone some bloke in a bank earning well below national average wage.

It is not the job of a mortgage advsier to forecast interest rates accurately.

2008-2011 is not a long time in the life of a mortgage. Those who've paid 15%+ for their mortgage within the last 25 years would have killed for a 10 year fix below the 7% mark.

How much do you owe? How much is your house worth?

TrickyDicky101

Hi
I make it you owe approx £75k at the moment on your mortgage? If so, moving from your current rate to a new rate of say 4% would save you in the region of £100 pm (ie so your repayments would fall to c.£550pm). If you needed to add the £5k ERC on to the mortgage, then your repayments would be £590pm.

Think very carefully before you switch as I don't think it looks tempting - this is without taking into account any mortgage fees on your new product and the uncertainty that a likely much shorter fix would bring.

Can you overpay your current mortgage? I would think this would be a better way to spend £5k...