Remortgage sums headache! Am I missing anything?

northern_at_heart

We're just coming to the end of a 3.94% 2-yr fix with Bank of Ireland (via Post Office) and next month will go onto their follow-on rate which is the SVR of 3.49%.

Our mortgage is around £185K which is 80% LTV. With some effort we could just about make a lump sum payment to bring it down to 75% for remortgaging, but only if it's worth it! Otherwise we plan to carry on making small but steady overpayments.

At 3.49% our monthly payments to BOI will be £966. I see Yorkshire BS are offering a 2-yr fix at 2.79% for 75% LTV (thereafter reverting to their SVR, currently 4.99%) so we could apply for that. However the £995 fee (£40p/m for 24 months) almost cancels out the benefit to our monthly payments. We would be around £20 or £30 p/m better off overall. And I see they charge a valuation fee too, which would probably all but cancel out the benefit over the 2 years.

What I can't get my head around is whether it's better to be on a fix for 2 years with the security that brings, even though Yorkshire BS SVR at the end of the 2-yr fix is much higher than our current SVR of 3.49%? I know we could move again, but it makes my head hurt to think about all the probabilities!

There's also the fact that our house may not be valued by YBS at the same amount we paid for it! I think we paid at the high end of what it was worth to be honest (Nov 2010).

As we've been happy with the BOI customer service etc., and a small rate rise would not be disastrous, I'm tempted to think that the hassle, valuation worries etc. make it more sensible to stay where we are. But I can't bear the thought of paying more than we need to on our most expensive (by far!) household expense!

Is there anything I need to think about that I've missed so far? What would you guys do?

harvey115

Your follow on rate is not that bad.

I would go for at least a five year fix if you are going for a fix anyways. Otherwise the above deal as you mentioned cancels out the benefits. However there is a security of the fix, BoI follow on rate may rise any time.

Hope this helps.

Conrad

Probably not worth switiching once you factor in interim interest on the existing and new mortgage.

Plus in 2 years a lenders variable rate can often be different to that expected as they can and do change thier terms here.

For £30 p month supposed saving, no way worth it. The only scenario that might be justified is switiching into a long term fix of 5 yrs + as harvey alludes to.

northern_at_heart

Thanks. Sorry to be dim but what do you mean by 'interim interest on the existing and new mortgage'?

JimmyTheWig

northern_at_heart wrote: »

Our mortgage is around £185K

I would consider this a large mortgage, so would certainly be worth looking at paying a fee to get a good rate.

In terms of the deals that you are looking at, 3.49% or 2.79% for two years with a £995 fee - by reducing your interest rate by 0.7% you'd be saving around £2515 over the two years in interest. So from that point of view it would be worth paying the fee.

But you wuold then be on a much higher interest rate which could be crippling if for some reason you couldn't remortgage at that point in time.

What I can't get my head around is whether it's better to be on a fix for 2 years with the security that brings

If it is security that you are after, I wouldn't go for a two year fix.
In two years time your standard repayments will have reduced your mortgage balance to around £174,000. This would still be a hefty mortgage.
So if rates have gone up in that time (and I think many suspect they will) then it will hit you hard.
As well as not giving you much time to reduce your mortgage balance, two years doesn't give you much time to increase your wages.
We don't know what will happen to house prices in the next two years. If they fall then you could be in a worse equity position than you are now, rather than the better position that you would hope for.

Personally, I'd say if you want some security then you need to look at a 5 year fix.
In five years time your mortgage balance will be significantly lower (especially if you can continue overpaying) and so a rate rise will have less effect.
It would give you time to build up your earnings which would put you in a better position to deal with a rate rise.
And it should leave you in a situation where you have more equity to be able to remortgage.


I'd say if you want security then go for a 5-year fix. If you're not that fussed about security then stick with what you've got or look at a shorter-term option for better value. Sticking with the low SVR is probably the safer option if you're not going for a long-term fix. Switching to the lower rate is the better value option if you can then secure a decent remortgage at the end of the fix.


The first thing I would do, however, is contact your current mortgage company and see what follow-on deals they can offer.