Switch to Repayment OR make regular Over-Payments?

Thrugelmir

Repromancer wrote: »

Ok that is really worrying that the banks can increase the rate on their SVR. I think it is in BOI's small print, and they can change the SVR under “exceptional circumstances”. If the courts agree, this will set a precedent on all banks…

These are exceptional times. Banks will only inact such clauses where the business itself is at financial risk. So unlikely that there'll be that many such actions.

All one can do is take decisions for ones own betterment and security. Not worry about macro events over which one has no control.

OffGridLiving

Repromancer wrote: »

I have considered fixing and going on repayment last year. But I have checked on comparisons websites, and I can't seem to find a better rate than the 2.69% I have on 85% LTV. Unless I am not checking the right places..

Long term fixes (5 & 10 yr) are usually more expensive than variable mortgages, but they offer the security against interest rate rises that you seemed to be concerned about. If you're not concerned about rate rises and don't think your mortgage rate will rise over the next few years, then you should stick with a variable rate as it's cheaper.

OffGridLiving

VT82 wrote: »

Many people are recommended to be switched to repayment, as it seems like they can't be trusted to overpay sufficiently. You obviously can, as you have the track record of overpayments, and will undoubtedly have sufficient salary increases to increase your overpayments to a level that would in fact clear the balance at the end of the term.

To be fair, the poster has had his mortgage for 6 years and hasn't repaid anything in the first 5 years. Over the last year he has been paying £430 each month off the capital, but this can't really be classed as an 'overpayment' because the poster said it's an underpayment of £50 per month when compared to a repayment mortgage.

No disrespect to the poster but rather than being 'trusted to overpay sufficiently', in the 1 year out of 6 that he has actually repaid anything, he's still £600 in deficit (£50 x 12 months).

Repromancer

OffGridLiving wrote: »

To be fair, the poster has had his mortgage for 6 years and hasn't repaid anything in the first 5 years. Over the last year he has been paying £430 each month off the capital, but this can't really be classed as an 'overpayment' because the poster said it's an underpayment of £50 per month when compared to a repayment mortgage.

No disrespect to the poster but rather than being 'trusted to overpay sufficiently', in the 1 year out of 6 that he has actually repaid anything, he's still £600 in deficit (£50 x 12 months).

No disrecpect taken. First 2 years was fixed so I couldn't make any over-payments, and the next 3 years I had other debt to clear off first. I see myself as good debt manager. If increasing my monthly fixed payments to £800 will solve the problem, then I'll be happy to do that, as I only find out 2 weeks ago what my repayment mortgage would be if I changed.

The worry is in the medium term when rates go back up to 3% in 4-5 years time, you will not have an option to go back to interest only if I now convert to repayment. I will be in a position paying a large mortgage determind by the bank, and like VT82 said loosing my flexibility to over-pay at my terms, and 19-20 years is still a long-time when any of my circumctances can change, change home, marry, etc.

Thrugelmir

Repromancer wrote: »

The worry is in the medium term when rates go back up to 3% in 4-5 years time, you will not have an option to go back to interest only if I now convert to repayment. I will be in a position paying a large mortgage determind by the bank, and like VT82 said loosing my flexibility to over-pay at my terms, and 19-20 years is still a long-time when any of my circumctances can change, change home, marry, etc.

If a rise in interest rates is a concern. Which eventually they will. Then over pay now. As the less capital you owe the lower the impact of any rise.

That's the secret of compound interest. He who understands it earns it, he who doesn't pays it.

VT82

OffGridLiving wrote: »

...in the 1 year out of 6 that he has actually repaid anything, he's still £600 in deficit (£50 x 12 months).

The deficit is theoretical. It will only crystallise if, when he is 48 (presumably married with kids), he still has the same mortgage, on the same house, as he did when he was 23. Odds of that?

Thrugelmir wrote: »

If a rise in interest rates is a concern. Which eventually they will. Then over pay now. As the less capital you owe the lower the impact of any rise.

He is overpaying. He understands the point of overpaying. £50 per month wouldn't make a difference to this line of thought. And suggesting he overpay over and above the level of the repayment mortgage, is another tangent still.

Thrugelmir

VT82 wrote: »

He is overpaying.

At the moment not enough to clear the mortgage. So a rise in interest rates will mean an even bigger increase to meet the objective.

racing_blue

Thrugelmir wrote: »

Return on instant access cash ISA's is now so low. That debt repayment is the best option for excess cash.

against that, the OP is paying 2.69% mortgage interest, similar rates are available in cash ISAs.

http://www.moneysavingexpert.com/savings/best-cash-isa

If the OP got a sudden large windfall, he could pay off mortgage but could not suddenly invest all the money in an ISA because of the annual limits. Thinking long term, an ISA war chest could provide tax free income when the mortgage is paid off?

OffGridLiving

VT82 wrote: »

The deficit is theoretical. It will only crystallise if, when he is 48 (presumably married with kids), he still has the same mortgage, on the same house, as he did when he was 23. Odds of that? .

The odds are very low, as I have just argued in a different discussion. However, my post was in response to the poster saying he didn't want to increase his term beyond 19 years.

VT82 wrote: »

He is overpaying. He understands the point of overpaying. £50 per month wouldn't make a difference to this line of thought. And suggesting he overpay over and above the level of the repayment mortgage, is another tangent still.

I don't wish to be pedantic, but I'd afraid you're wrong. Here are some definitions of overpayments from a financial website:

overpayment

1. overpayment
   [n] - a payment larger than needed or expected 2. [n] - the act of paying too much
   
2. Overpayment
   The difference between your regular monthly repayment and a higher amount that you choose to pay.
   
3. Overpayment
   The situation whereby more than the required amount (i.e. the monthly repayment) is paid to the lender in order to decrease the term of the mortgage, this can be in the form of a lump sum or regular monthly overpayments.

The poster is not making a payment larger than what his normal monthly repayments would be in order to complete his mortgage within its term. He is making an underpayment and is therefore not reducing his mortgage term, he's increasing it.

If the poster was paying £50 more than what his normal repayments would be, then he'd be making overpayments, albeit still not enough to cover the deficit from missing the first 5 years.

As you have indicated, this all changes if the poster is prepared to extend the term of his mortgage past 19 years. However the poster has said that he doesn't want to do this, so I am pitching my responses accordingly.

Thrugelmir

racing_blue wrote: »

against that, the OP is paying 2.69% mortgage interest, similar rates are available in cash ISAs.

http://www.moneysavingexpert.com/savings/best-cash-isa

There's only one instant access ISA that's higher than the mortgage rate, and that's a regular saver.

I guess it depends if you are the type of individual whose happy to pay a 1p per litre more for petrol, when there's a cheaper garage 50 yards done the road.