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

getmore4less

shamilt1 wrote: »

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?

Always start with FD and then compare others against theirs.

They don't always win but often do.

As has been pointed out there are otheroptions which will be cheaper if you are happy to be mortgage free ASAP and don't really need the flexability

What offset gives you is cash flow and longer term access to relatively cheap funds if you go for a longer term. But you can get to mortgage paid off and 20k savings in less than 5 years if you keep track of the budget and retain income that may be good enough to start the long term road to the retirement goals.

shamilt1

Thank you, i will look into that. The rates going up is certainly one thing I am worried about. With the fix, I know I'll pay 6k interest over 5 years, with the other mortgages, the interest rate may go up which in turn would put the length of time I'm paying up.
One of the problems is I dont know the market- I don't know which mortgages allow unlimited overpayments, no early exit fees etc and im not clued up enough to spot what is probably an obvious drawback on a particular mortgage. Im open to recommendations from you guys! Ill have a look and see what I find, then see what everyone thinks of them on here. I didn't want to, but I could probably do with a broker.

shamilt1

getmore4less wrote: »

Always start with FD and then compare others against theirs.

They don't always win but often do.

As has been pointed out there are otheroptions which will be cheaper if you are happy to be mortgage free ASAP and don't really need the flexability

What offset gives you is cash flow and longer term access to relatively cheap funds if you go for a longer term. But you can get to mortgage paid off and 20k savings in less than 5 years if you keep track of the budget and retain income that may be good enough to start the long term road to the retirement goals.

Thank you. The FD examples you pointed out look like they're interest only mortgages. I've always stayed away from these- in fact I didn't know they still did them! Are they more of a risk than capital repayment?

R_P_W

What I'm trying to get across to you when looking at a Fix Vs a Tracker is...

Lets say the best fix you can get is 4% and that costs x amount a month and in 5 years time its paid off.

Now lets say you can get a tracker at say 3.5% which will cost you less per month. In order for you to lose, your tracker would have to increase by more that 0.5% (which based on the current outlook doesnt seem very likely in the next couple of years).

So why do a fix and pay a premium for it? When you could get a cheaper tracker? Lets say you have budgeted to pay £1000 a month off your mortage (whether its a fix or a tracker). With the lower rate tracker more of your 1000 is paying off the capital each month, with a higher fix more is going to the interest incurred. So with the tracker you pay more off the balance now, IF in 3 years time the rates went up my 1%, you will have a lower balance to pay the interest on.

If your main goal is to pay this mortgage off in 5 years - I can't understand why you wouldnt want to do it in a way that costs you the least amount of money and gives you the most flexibility to do it.

Generally you pay a premium on a fix for the security of knowing the payment. Most I have seen have restrictions on overpayments for the fixed period as well.

Why pay 6k in interest if you can pay less????

R_P_W

Please go and see an independent mortgage advisor.

In your other post you say 'with other mortgages the interest might go up which will put the length of time I'm paying up' - if you take a 5 year mortgage term and the rates go up, the term won't increase, the payments will.

Keep it really simple, what is the best tracker rate you can get? What is the best fixed rate you can get? What is the difference in payment, difference in whole life cost and what is the liklihood of the tracker rates exceeding the fixed rate over the next couple of years?

shamilt1

R_P_W wrote: »

Please go and see an independent mortgage advisor.

In your other post you say 'with other mortgages the interest might go up which will put the length of time I'm paying up' - if you take a 5 year mortgage term and the rates go up, the term won't increase, the payments will.

Keep it really simple, what is the best tracker rate you can get? What is the best fixed rate you can get? What is the difference in payment, difference in whole life cost and what is the liklihood of the tracker rates exceeding the fixed rate over the next couple of years?

The mortgage advisor seems a good idea. The 5 year fix I'd seen was 3.79. % which seemed pretty good- only .5% higher than a lot of trackers, with the guarantee that the rates won't go beyond this- which of course I wouldn't get with a tracker. What I've learned he though is that it's an unnecessary risk tying myself to the high payments and that there are less risky alternatives. That's why I posted and I feel more clued up than I was - so thanks all for the advice. I think I will probably now go for a tracker with no limit on overpayment or penalty for paying off early. I would think this is less risky than the fix, and easier for me to follow than the offset.
Just one other question though- am I right in saying that if I take out a lifetime tracker over 20, 15 or 10 years, it would make no difference to the amount I paid if I paid it off in 5 years- only difference being the option to have smaller monthly payments with the longer terms?

bigadaj

The capital repaid would be the same over whatever time period, but the faster you repay the lower teetotal interest, so you would pay less in total over five years than ten or twenty.

shamilt1

So I've seen this mortgage http://mortgages.firstdirect.com/mortgage-rates/product/life-tracker-repayment--fee-free%7E80
a life tracker. So am I correct I calculating it this way?
Year 1
61000 + 2189 interest= 63189. If I pay 1100 per month that's 13200 paid off in a year leaving 49989.
Year 2
49989 + 1794 = 51783
Take off 13200 that leaves 38583

and so on. Am I working this out correctly ( as long as interest rates don't rise?)

shamilt1

Actually this one looks better https://mortgages.hsbc.co.uk/product/A001002837001002838001002839-lifetime-tracker-special-fee-free?source=results
Low interest rate, unlimited overpayment, fee free & no tie ins. What do you guys think? I'm a little unclear as to whether I can overpay more than 20% on my monthly payments though. I think I'm allowed but I'm going to ring them to find out.
Edit- Just rung and I can overpay by as much as I want. Sounds good!

getmore4less

shamilt1 wrote: »

Thank you. The FD examples you pointed out look like they're interest only mortgages. I've always stayed away from these- in fact I didn't know they still did them! Are they more of a risk than capital repayment?

Interest only/repayment just determines the minimum contractual payment.

It's what you pay/save and the interest rate that actualy determines the eventual term(debt goes to zero) of the mortgage and how much interest you end up paying.

It is actualy quite simple.

The more you borrow and the longer you borrow it the more it costs.

Repayment just means you borrow some of you money for less time at a set schedule.

Interest only means you borrow it all untill you pay it off.

offsetting just means you borrow less money for less time while the offset funds are there.

overpayments do the same borrow mony for less time.