Remortgage dilemma

Shinken

My current mortgage (FTB) comes to an end at the end of the month.
It was a 5 year fixed rate 5.63% with Nationwide for £153k on a £175k property.

I have been making overpayments over the last year and reduced the balance to £129.5k. I would have paid more, but >£500 overpayment per month incurs ERC's.

My focus is to repay ASAP. With the deal up, my intention is to reduce the balance further using capital from a maturing bond (was earning 4%, but there is nothing worthwhile to reinvest it in). This would bring the outstanding balance down to £85k.

The best deal I have seen in the last six months of looking is to stay with Nationwide. As I also have my current account with them, they'll offer me 2.69% fixed for 4 years with no fee. I would again overpay on this at £500 per month and would owe ~£28.5k by the end of the term.

The dilemma is that when my deal ends, I revert to their BMR which is currently 2.5% and capped at BoE base rate plus 2%. Should I just dwell on the BMR? interest rates are unlikely to change in the foreseeable future, but Nationwide could decide to alter the BMR. Especially as more deals end and the number of people on this rate increases. Isn't the extra 0.19% rate worth the security?

Is there anything else in my strategy that I should be concerned about?

Thrugelmir

Shinken wrote: »

The dilemma is that when my deal ends, I revert to their BMR which is currently 2.5% and capped at BoE base rate plus 2%. Should I just dwell on the BMR? interest rates are unlikely to change in the foreseeable future, but Nationwide could decide to alter the BMR. Especially as more deals end and the number of people on this rate increases. Isn't the extra 0.19% rate worth the security?

Is there anything else in my strategy that I should be concerned about?

Nice dilemma to have. Though base rate may fluctuate. Unlikely you'll better the BMR rate on offer in the future. Nationwide are unlikely to change this rate. So no fears in this regards.

Personally I would continue with it. Rather than sacrificing the rate for a short term gain but a longer term loss.

originalmiscellany

Wow, you're in a lovely position! 85k is very manageable. When you work out the time you will have saved off your mortgage and how much less interest you are paying back, you can be pleased!
As usual Thrugelmir offers sensible advice But congrats on your overpaying and your saving scheme.

bigadaj

Good advice above, and my only comment might be could this money work better elsewhere. A low mortgage rate means that the relative benefit isn't great, it depends on your circumstances, but saving an emergency funds, utilising isas and certainly pensions are also areas to consider. I like the idea of being mortgage e free, but always pays to think about the wider picture.

Yorkie1

Are you definitely sure that when you come out of the new product in 4 years' time, you'll go back to the BMR? Choosing the new product doesn't mean that you'll go onto the SVR instead afterwards?

Mind you, at £28.5K at that point, you're not going to be paying a huge amount of repayments anyway, but if this is important, best to be sure.

Shinken

Thanks for the replies.

My ISA is maxed each year. I have a really good final salary pension, although I should look into more tax efficient ways to augment this.

I revert to the 2.5% BMR at the end of my current deal. If I take the 2.69% for 4 years, I'll then revert to the SVR. Currently 3.99%.

I'm sure I could find a better deal than this at that stage.
Plus, I already have a few ideas to pay off the £28.5k at that point (more or less).

The question is should I risk riding the 2.5% rate and be free to make whatever overpayments I can or sign up for the surety of the 2.69%?

From what I understand, I have to revert to the BMR in order to knock the balance down to £85k, without paying ERC's.

Thrugelmir

Shinken wrote: »

I'm sure I could find a better deal than this at that stage.

Therein lies the question, can you. Interest rates are being deliberately suppressed at the moment. Due to the economic conditions generally and weak balance sheet positions of the banks. So don't be lulled into the sense that current rates are the norm. As with the NW 2.69% product. Banks are protecting themselves with high follow on rates i.e. 3.99% and higher. As that where rates will be heading once economic stability returns.

fiffio99

I know its for new customers only but if you take out a "new" deal with nationwide you can potentially take advantage of the fact you can now overpay 10% of the balance rather than £500 pm.

Not sure how it wil work given you'll be classed as a new customer but might be against the new deal?