Current 1%+BOE, should I look at a fix!

Inksleeves

Currently have 140K with Alliance and Leicester at 1% over Base rate.

Also have 64K additional borrowing at 5.49% plus base.

Our combined monthly payment is £1224.

First Direct will offer a 5 year fixed rate with no fee's just the legal and valuation to pay. Monthly payment is £1253.

Santander will offer a 5 year fix with no legal or valuation and a £500 fee...Monthly payment £1253.



The rate is inevitably going to rise, and these fixed rates would obviously save us money over the 5 years of fixing, mainly due to the poor rate on the additional borrowing.

What I'm struggling to decipher is the long term affect of giving up the one percent over base. It always seemed like an unbeatable rate in the long run.

Could really do with some opinions.

getmore4less

I would check your assumption that they would save you money over 5 years.

Do the calculations

Whats your full term.

What are the rates on offer and the follow on rates

getmore4less

Guessing around 18y

£140k @ 1.5% is £740pm in 5 years £104820
£64k @ 5.49 is £467pm in 5 years £52004

total £1207pm in 5 years you owe £156824.


FD £204k over 18years would suggest a rate of around 3%

paying the same as above £1207 for 5 years you owe £158941

Long term the follow on rates will be higher.

any overpayments on the hight A&L wil make the long term eaven better I think.

need real numbers to model but these look close guesses.

Inksleeves

the main loan has 15 years to run, the additional 20 years.

The follow rates are SVR, so 3.69 for FD at the moment.

finding a calculator that gives me the figures I need is tough, but it appears that I can expect the following.

BOE % _____ 0.5 ___ 1.5 ___ 2.5 ___ 3.5
Main _____ 776 ___ 866 ___ 929 ___ 951
Additional _ 448 ___ 523 ___ 563___ 605
TOTAL ___ 1224 ___ 1389 ___ 1492 ___ 1556

If rates progress as
1% end of 2015
2% by end of 2016
3.5% by end of 2017

So by end of 2017, a fixed rate could save us £10k, with another 2 years of the fix to run.
As the 1% over base loan has less than 15 years to run, it seems to me that a fix now would be the best bet.

Imma_Number

What's the term on the mortgage you are thinking of fixing the whole amount for? 15yrs, 20yrs or somewhere in between.
And what's the rate you are looking at? 3.29%?

With your projection of 3.5% BOE by 2017 that *could* make the follow on rate 6.69% on the whole of what's left.

Inksleeves

We'd probably take a 19 year term.

The Santander fix would allow us to make over payments and benefit from the 123 account.

so the SVR rate of 6.69 would give us a repayment of around £1551.
It would take 33 months of me not doing anything to switch for us to loose a 10k saving.

But TBH, at the end of the fix I'd be looking at other options again anyway.

Inksleeves

Another quick throw of numbers.

Assuming a 3% bank rate.

Current loans give a lifetime cost of 302K (167K + 135K).

New fix (assuming no switch after fixed rate) appears to have a lifetime cost of 320k.

This seems mainly due to the fact that current main loan ends in 15 years and we would be extending that borrowing by 4 years.

Perhaps the best option would be to throw the big loan into interest only and throw all the money we have at the additional loan with its high interest rate.

Thrugelmir

Inksleeves wrote: »

throw all the money we have at the additional loan with its high interest rate.

That's the route I would choose. Make some sacrifices and savings in your outgoings to spped up repayment of the debt.

Inksleeves

That said.

10k extra in my pockets over the next 3 - 5 years is appealing.....especially as a lump sum pension payment could make mincemeat of the mortgage in 9 years time......

Imma_Number

I'm not sure you'll be able to switch to IO on the big mortgage. You may know different.

I think your predictions for BOE base rate rises are too high, too fast. My view is that even a slight increase in the BOE base rate will have the newspapers up in arms.

I can't work out some of your figures. eg just working on the additional borrowing:
If BOE rate 3.5% today. Over 20yrs £64000 at 8.99% = £575.41pcm
If BOE rate stays 0.5% until end of 2017 (4 yrs and unrealistic) and then goes up to 3.5% the balance will be lower by then and so the payment at 8.99% would be £555.90 for the remaining 16yrs.
So I don't know how you reached £605 pcm for that.

End of 2017 is approx 4yrs away and so only 1yr remaining on the fix.

getmore4less

i am away now will have another look mon/ Tues.

you need to do proper like for like, use a simple calculator.

will santander do a thing with the 64k or extend the term of the 104k