Help with mortgage payments please

davegrohl1

Hi, Newbie here so please be kind!

My mortgage is up for renewal and I have decided to stay with my current lender for various reason and go for a fixed rate.

We currently pay £1003 per month. We have an overseas investment valued around £100,000 which will eventually be completed and sold to pay a chunk off the mortgage. But it is unlikely that that would happen over the next 5 years.

Mortgage is made up of two parts and term is 22 years which we are really keen to reduce.

Part 1 £86,000 @ 1.74% above base rate until the end of the term, we have decided to keep this as is, so not involved in the remortgage.

Part 2 £100,000, we have been offered 3.19% for two years which overall is a saving of £97.07 on what we are currently paying, or 3.69% for five years a saving of £71.12 per month.

My question is what would people opt for two years or five years.

And (this is the bit I can't get my head round.) how would overpayments work. So say we went for the 2 year deal but overpaid back in by £97.07, or took the 5 year deal and overpaid by £71.12.

Any advice would be appreciated. Need to make a decision in the next couple of days.

bigadaj

Which deal is preference and guesswork, assuming part 2 is fixed then probably go for the five year for certainty. Are there additional fees and costs involved?

In terms of overpayments then check to see if any penalties, typically allowed 10% peryear though maybe not if fixed . When you make overpayments you need to decide whether to reduce the term and so save interest, or maintain the term and reduce payments. If you make regular overpayments of similar amounts then the overall effect is similar for either option.

Annisele

If I was going for a fix at all, I'd also choose five years.

Sadly I've no crystal ball, but in my own entirely personal and subjective opinion rates aren't going anywhere in the next year or so. But I think you might come out of a two year fix just as rates have started to rocket.

As bigadaj says, you need to check your paperwork for how overpayments would work.

dimbo61

£186,000 is to me a huge mortgage so I would be looking at a long term fix and overpay every penny I could each month provided it did not trigger any ERC,s ( early repayment charges).
Now I would also keep a careful eye on interest rates as you may need to swop the overpayments from one part to the other if interest rates start to rise !
£26 a month is a small price to pay for an extra 3 years security.

davegrohl1

Thanks for the views and yes £186k is a big mortgage, we got stung on an overseas investment which was meant to be a short term thing that due to the recession is now long term. Only risk we have ever taken financially and properly ballsed it up!

Just for info its upto 10% overpay with no penalty.

I have decided to go for the 5 year fixed @ 3.69%.

We are happy to continue paying £1000 a month so have £70ish to play with each month.

Would you;

1. Decrease the term to match that amount
2. Overpay the extra, if this choice we have the option which portion to overpay on. Which would you go for the fixed 3.69% £100k or the 1.74% tracker £86k??

Thanks in advance

Dave_the_Ginger_Cat

On the first point, it's your choice - reducing the term rather than the payments will cost you less in the long run, but clearly won't drop your payments. It depends on what you have in plan for you and your family over the next few years. Based on what you say about you preference, it sound like you're keen on the term reduction. If you go down this route and change your mind later, it is usually possible at renewals to change this a little. I moved one of mind up by 5 years as it suited me for tax purposes

On the second, I'd pay it off the fixed rate. Based on the figures you give, you will keep within the 10% cap on capital repayments, and you'll save more money as this is the more expensive part of the mortgage.

dimbo61

Keep the term the same just in case of problems in a few years and just overpay the most expensive part each month with whatever you can afford.
Overpay the fixed part now but who knows in 2/3 years the BOE base rate might be 2% so then overpay the tracker !!!