Can I take a 5 year term mortgage & is it my best option?

shamilt1

getmore4less wrote: »

Who is your current lender?

Is that follow on rate the rate it says in your docs or a rate you have checked recently.

you can get 5 year fix 5 year term.

With an offset you don't have to save in the savings accounts you can just overpay like you do now.


Allthough fixing is atractive the variable rate may be worth the risk if much lower.

With 61k debt, 20k savings and £1117pm

looking at FD offset 65ltv fee free 3.89%
http://mortgages.firstdirect.com/mortgage-rates/product/base-rate-tracker-offset--fee-free~59

You will be net zero in 40 months with total interest of £2725 (+ what you would have got from the savings).

actualy the 2 year fee free discount tracker is better £2506 interest 39months
http://mortgages.firstdirect.com/mortgage-rates/product/2-year-tracker-offset--fee-free~6


there are probaly better deals that that with a bit more research, FD are a good benchmark for offsets and regular mortgages

That sounds interesting- so I could pay it back in less than 4 years this way?! My savings may go down in the next few years tho, because we just about break even year on year & we might have to splurge on a change of motor in a couple of years or so (£4000 ish). Dont know how much that would change things. I think that's why I am attracted to the fix- it takes the guess work out of it for mortgage novices like myself. Also the current fix rates are so much better than my current fix (6.29%).

getmore4less

shamilt1 wrote: »

That sounds interesting- so I could pay it back in less than 4 years this way?! My savings may go down in the next few years tho, because we just about break even year on year & we might have to splurge on a change of motor in a couple of years or so (£4000 ish). Dont know how much that would change things. I think that's why I am attracted to the fix- it takes the guess work out of it for mortgage novices like myself. Also the current fix rates are so much better than my current fix (6.29%).

That says a 5year term committing to 1117pmonth is not a good idea.

It makes the offset even more attractive if you get hang of using it and do a 5 year plan.

You get a cash flow buffer starting with the £20k offset(or more if you get a biiger loan and offset the extra.

You pay on a 5 year plan save the rest as cash flow and interest reduction.

Remember on those 40 month numbers the mortgage is costing nothing at 40months so you are saving £1117per month after that to rebuild the £20k savings.

But what the offset gives you is access to the cash should you need it.

£41k over 5 years is around £750pm giving you a monthly surplus of £250-£367 for cash flow

if you bought the car now for £4k thats a £45k debt 821 over 5 years so £71 of the surplus.


The real trick to paying off a mortgage is not rates or term but not spending money elsewhere

Do a SOA and analyse your spending, prioritse the important stuff think like you are in debt, needs wants analysis, check your utilites and monthy outgoings are all as low as possible.

Do all that and the mortgage will disapear in no time.

Roughly if you can save £100pm you will knock 7months of your 5 year mortgage the next £100pm another 5.5months and the next £100pm 4.5months.

then your new problem will be how to spend/save the money you were using to pay the mortgage.

shamilt1

The original idea was to do the five year fixed then use the £20,000 for any additional spending. Looks like i need to change my way of thinking. With the offset, do I actually make monthly payments, or is everything ( savings, mortgage etc) lumped in together, showing a negative balance which then reduces as the wages get paid in? Also £16000 of the saving is in a cash ISA- is it worth taking it out to do the offset?

getmore4less

shamilt1 wrote: »

The original idea was to do the five year fixed then use the £20,000 for any additional spending. Looks like i need to change my way of thinking. With the offset, do I actually make monthly payments, or is everything ( savings, mortgage etc) lumped in together, showing a negative balance which then reduces as the wages get paid in? Also £16000 of the saving is in a cash ISA- is it worth taking it out to do the offset?

Depends on the offset you choose.

I am with barclays,

Mortgage account with fixed regular monthly payment set to pay of the debt on Schedule. This is an option which result in overpayments due to offset, you can chose variable.

Savings accounts with offset funds (upto 12 including ISA)
Extra account(same rate as mortgage) with an overdraft limit that reflects the overpayments due to offsetting.


As to ISA or offset it is a comparison of the rates and long term plans using ISA.

A comprimise might be to get a 5 year fix that allows some overpayments and adjusting the term so normal payment and overpayment is 5 years.


If you have a goal you can model the cash flow for mortgage, car, loss of income etc. to come up with a plan that can acheive the goal and not be too risky


If the plan has some discretionary spends in it that can make it even saver, plan works with one income and no holidays, two incomes and you get holidays

shamilt1

Looks like I have a lot to chat about with my bank this Friday! They do the fix that I was after which was competitive, but their offset doesn't look the best compared to the one you showed me- 3.25% for 2 years, then 4.95% variable thereafter.

buzi

i think a tracker would be good, like a 2.99% lifetime fee free tracker with HSBC - no overpayment penalties etc with this

would be careful about mge brokers cause many take advantage of people who dont really know their way around mge's

Morgage_Confused

theres no question, with 33% of your mortgage total as savings, that offset is the way forward.

In fact your in a fantastic position to make offsetting work for you.

shamilt1

Looks like I'm converterted. Can anyone recommend a good offset? As I said my bank which I'm meeting with on Friday has an offset- 2 years discount at 3.25%, then after 2 years 4.95% variable. The arrangement fee is free at the moment. Are there any offsets that stand out as really good at the moment?

R_P_W

Why dont you get the best tracker mortgage you can for a 10 year term? Don't know what rate you would get, but I think assuming 3.5% that would be a monthly payment of ~£600? You say that you are used to paying closer to £1100 a month, so take it out for 10 years your commitment is ~600 (which will be more manageable if your personal circumstances change) and then overpay an addiitonal 500 a month or more if you can afford it. This get you to your 5 year target roughly.

If it turns out you cant afford to overpay then you dont have to.

some lenders have a facility that when you overpay you build up an overpayment fund - so if you overpay £6k in year 1 and then in year 2 you reliase you need £3k back you can access it.

i just think with your short timescale target you can afford to take a risk and get the lowest tracker you can and overpay to mitigate the impact of any future rate increases (which most people seem to think won't happen for several years yet)

getmore4less

Morgage_Confused wrote: »

theres no question, with 33% of your mortgage total as savings, that offset is the way forward.

In fact your in a fantastic position to make offsetting work for you.

It will depend on the rates and saving rates more likely that closer to 50% offset is needed.

the last calc I did in feb on FD with tesco savings 20% tax showed 55% was needed to break even.

http://forums.moneysavingexpert.com/showpost.php?p=50879345&postcount=797