What would you suggest? Fix to Lifetime tracker

Lord_Isleworth

I need some help and advice please. I have been round in circles deciding what to do regarding my current mortgage. Currently with Santander on a 5.79 fix that ends May 2013. I am the sole earner (48k a year) and our joint account is straining to be honest with us using savings every month above our outgoings.

I bottled a decision 18 months ago to get off this fix and have regretted it every day since because with rates so low we would have broken even in 10 months and enjoyed much lower monthly payments!
My wife isn't working and our youngest starts school next Sept so the the plan is she will return to work once this happens...jobs permitting.
We currently pay £825 a month interest only. We have a high ECR of 7k to move. Santander will not budge on this. I asked to move products within their range, pay a penalty but nothing doing and I have to acknowledge it was my fault not researching the ECR at the time...At the time they though wouldn't offer us a 2 year fix only five year was offered and we are paying for that decision now!
We have overpayed 40 k in 2 years because we moved to a cheaper area and we currently owe 175k mortgage on 15 years term and house bought for 309k 2 years ago.
I have read others advice regarding high ECR's and fixes and most people recommed to stay put but this high rate is killing us each month with us eating into savings to the tune of £400 a month on top of the £825 payment on the mortgage.
I have spoken with First direct and they are offering us deals on lifetime tracker on 15 year term that means if we paid a fee of £1500 we could pay approximately £384 a month on their 2.38% deal. Also on offer is a 2.99% deal for £499 paying £480 a month or 3.29% fee free paying £526 a month. . I figure this £450 saving plus the £400 saving of not using savings makes the 7k ERC worth it quite quickly on the £1500 fee product. We need a release valve on the joint account and this would provide it.
What do people think? I have a call with First Direct Friday and would like to know what people think to this.
We have 28k savings to use on the offset so we would have a mortgage of 175k and 28k offset with £2400 a month coming in from current account.

DannyboyMidlands

By all means change the mortgage but 5.79% isn't that high historically. I think the real issue here is where does the other two and a half grand per month disappear to?

theoretica

Lord_Isleworth wrote: »

I have spoken with First direct and they are offering us deals on lifetime tracker on 15 year term that means if we paid a fee of £1500 we could pay approximately £384 a month on their 2.38% deal. Also on offer is a 2.99% deal for £499 paying £480 a month or 3.29% fee free paying £526 a month. . I figure this £450 saving plus the £400 saving of not using savings makes the 7k ERC worth it quite quickly on the £1500 fee product.

Firstly, I think you are double accounting. I figure this £450 saving plus the £400 saving of not using savings... You would not be saving 450 on the mortgage AND 400 from savings - just 450 on the mortgage so hopefully adding £50 to your savings.

Your current fix ends in May 2013- 17 months away- so this is the break even point I think you should be considering. 7k ERC + £1.5k fee = 8.5 k. To save 8.5k on your mortgage in 17 months you would need to save £500 on your mortgage each month or a payment of under £325. Which is not on offer. Even if tracker rates don't rise within 17 months.

[Even if you don't want to take into account the fee for the new mortgage (as you would need to pay that to change mortgage in 2013) you would still be exposing yourself to the risk of the base rate rising for the [I]possible [/I]gain of [I]up to[/I] only £500 over 17 months if the base rate stays at .5 for the entire time (and also possible large loss if interest rates rise). It doesn't sound worth it to me.]

If you are willing to pay 7k for a 'release valve on your current account' I think spreading it out over the 17 months and drawing 400 from savings a month is probably the most secure way.

System

Looking at the numbers, there is not a huge amount to be gained by moving. You may save £400/month in interest but in the 16-17 months left on your fix you will only be able to break even with the £7k ERC you will pay. Dont quite understand what you mean by a '£450 saving plus the £400 saving of not using savings'. You are only going to save around £400 a month interest, not £850.

I am also a little confused, as you state you are having to use savings each month to get by. This being the case, how have you managed £40k of overpayments in 2 years??

System

theoretica wrote: »

Firstly, I think you are double accounting. I figure this £450 saving plus the £400 saving of not using savings... You would not be saving 450 on the mortgage AND 400 from savings - just 450 on the mortgage so hopefully adding £50 to your savings.

Your current fix ends in May 2013- 17 months away- so this is the break even point I think you should be considering. 7k ERC + £1.5k fee = 8.5 k. To save 8.5k on your mortgage in 17 months you would need to save £500 on your mortgage each month or a payment of under £325. Which is not on offer. Even if tracker rates don't rise within 17 months.

[Even if you don't want to take into account the fee for the new mortgage (as you would need to pay that to change mortgage in 2013) you would still be exposing yourself to the risk of the base rate rising for the [I]possible [/I]gain of [I]up to[/I] only £500 over 17 months if the base rate stays at .5 for the entire time (and also possible large loss if interest rates rise). It doesn't sound worth it to me.]

If you are willing to pay 7k for a 'release valve on your current account' I think spreading it out over the 17 months and drawing 400 from savings a month is probably the most secure way.

Sorry theoretica, you just beat me to it!:T

theoretica

payvpac wrote: »

I am also a little confused, as you state you are having to use savings each month to get by. This being the case, how have you managed £40k of overpayments in 2 years??

But you were more concise and straight foward than I! I interpret the above as 'we downsized two years ago so have a smaller mortgage than we used to'.

Lord_Isleworth

Thanks for the replies.
Danny Boy I don't swan home after a 13 hour day to champagne cocktails. I spend £400 a month to commute back to london and have two small children at home so we have seen cost of living rise a lot over last 3 years.
I can see payvpac and theoretica are both right in the sense that we won't cover fees so I think you have answered our question. We swapped a bigger mortgage for a smaller one so able to overpay...

shortchanged_2

Looking at it. You are paying an interest only mortgage and you are struggling, as Dannyboy stated your rate isn't really that high, you are comparing it with current very low rates (dangerous).

Your options seem to be to either cut your outgoings and/or increase your income.

Basically you are living beyond your means and you need to do something about is ASAP before it gets out of hand. Have you had a look on the debtfreewananbee board for advice?

Nicky_Noo_Na

I am also with santander on a fixed rate mortgage and if I choose to re-mortgage to another santander product I can do it up to 6 months before my fix ends - you could check if you can also do this and change to a more suitable product 6 months earlier than you think your fix ends??

originalmiscellany

I don't think anyone yet has said this:
Why don't you post an SOA (http://www.makesenseofcards.com/soacalchelp.html) showing your income/expense etc? It looks like you sadly have a few things out of sync at the moment if you can't break even at the moment. Can you encourage your wife to find a job faster than before September?

Lord_Isleworth

My wife and I have no credit card debt, our LTV on our house is 59% and if my wife were to find a job i don't see the point if all that money is used to pay for childcare. Thanks for the advice. We have 28k saved up to support our extra expenditure at the moment so i think we could be in a lot worse position than we are. I appreciate all advice.