dropping to standard rate from fixed

bruceiow

Hi all,

I have just had a meeting with my mortgage provider to discuss what happens when my fixed deal finishes in a few months.

Basically I have been told that by default I will be going to base + 2%. On the face of it, that currently saves me a few hundred a month on the repayment amount which on first glance is great.

My question is however, is the base volitile at the moment? I see it has flat lined at 1/2 a percent, but looking back to the 80's there were double figure base rates. My other option on the table would be to fix a 2 year deal at 4.9%.

I dont want to put my property in danger by simply plumping for smoething that is cheap now but will be cripplingly expensive if the base suddenly rockets.

Any advice would be greatly appreciated.

Gary123456790

Hi,

Much like choosing fixed or tracker, you are in the area of personal choice. It is a good time to clear any other debts or credit cards you have, or build up an emergency fund if you do not already have one.

If/Once these are catered for then put the extra money into the mortgage along with the normal payment (on SVR you probably dont have an overpayment limit but check with the lender). This will reduce your LTV and give you access to better mortgage deals when you decide you need to change to a new mortgage product.

The base + 2% looks reasonable compared to fixed and tracker deals currently available, so may be the right for you now, but this is totally your choice to make (for better or worse as they say). Deals available now are likely to change if the base rate changes.

It could your adversity to risk (or your ability to may more) that decides this for you.

Gary.

opinions4u

Base rate can and will change. The question is when, how often and by how much?

If it was a choice of 2.5% variable v 4.9% fixed for two years I'd choose the variable every time. But on the basis that I understand the riss that go with that.

If you set your budget for mortgage as if the rate was 5% (or perhaps higher if that's what you're paying now), overpay the mortgage on that basis and don't fritter away the "few hundred a month " on other things you'll put yourself in a stronger position.

1) Your debt will reduce faster.
2) This will reduce the term and also reduce interest charges (not rates) in future.
3) As and when rates do rise you will have more time to adjust your budget accordingly.

Will BofE base rate rise by 2.4% or more within the next couple of years? I doubt it. So a 4.9% fix seems pointless.

If you'd said a 5 year fix then the debate is less clear cut.

bruceiow

Thankyou for the replies - any saving made will be ploughed back in to the repayment. I checked at the time that there are no overpayment fees.

I will look again when the time is up on our current 6.65 deal and take the choice then. :beer:

motch

Mortgage of base rate + 2.0% is a good deal -especially if they were to guarentee it never rises 2.0% above base rate.
To get that sort of deal normally you'd need a squeeky clean credit file and good equity in your property, probably no fees to drop onto it neither.

Will base rate rise much? who knows, although odds are in the favour of it not rising. Things could change though.