Remortgage advice (fixed or variable?)

myafai

Hi all,

Our current mortgage deal is finally ending. We were first time buyers in 2010 and on a 5 year fixed rate deal with 5.25% with the Bank of Ireland via the Post Office. We're in a definitley better position now with an LTV of 63% - remaining mortgage 85k, propertly valued at 135k.

So the question here is what type of mortgage would be more suitable for us. Fixed (2/3/5 yrs) variable, tracker etc, how does one go about it in selecting one?

Our initial thoughts are:-

• Look to fix for another 5 years to take advantage of current low interest (although that's what we thought last time round!)

• Look to increase our payments and reduce the mortgage term time. We're currently paying £575 but can afford to go to say £650 comfortably

So for e.g. if we were to go with a deal of 3% 5yr fixed rate with a remaining mortgage of 85K we would look to reduce our mortgage term time from the remaining 20 years to 13 years, which works out to paying approx £658 a month.

Is this a good plan? Or should we look at other type of mortgages with a more flexible feature?

What would you do if in our position?

Thanks
Mo

marathonic

At 63%, I'd personally go for a 2-year fix.

My reasoning would be that the 2-year fix is cheaper and, by the time it ends, I should be below 60% LTV.

Personally, I think that a 3-year fix at 60% LTV will be available in 2017 at rates below those currently available for 5-year fixes at 63% LTV. Of course, this is just my guess and many will disagree.

termhero

Your idea and reduction to 13 years seems a good choice, but have you considered:


A re-mortgage will require a full, new application. I haven't been involved in one myself, but from reading various threads on here since the changes last year it isn't as straightforward as it was in 2010.


Does your plan allow for life's unscheduled issues? Job loss, illness, children/more children?


Whilst knocking 7 years off is a hell of an achievement, I would look for knocking 5 off, and research a mortgage that allows you to regularly overpay without penalty.


This would allow you to pay the £650 ish figure, but not tie you to it.

Best of luck!

myafai

Marathonic - I like your thinking. There is an element of risk though as it all depends on the housing market, what the property value would be in 2 years time and whether interest rates will remain the same or increase (can't see them going any further down). Room for thought...

Termhero - I already approached our current lenders Bank of Ireland and have a telephone appointment booked tomorrow to see what options are available to us. My understanding is if you stick with the same lender (provided you get a good deal) the process should be easier (hopefully). We'll see.
My plan for unscheduled life events is to roll with the punches lol...we have some cash saved up purely for that (not much but its something)

I always read about flexible mortgages, I just don't see them as lenders will always try to use overpayments to reduce monthly payments, or they put restrictions saying overpayments will only reduce term-time by so&so date, or put a stupid overpayment limit etc...plus I get worried that if I have extra cash I'll just spend it somewhere instead of overpaying lol

I honestly think £650 is comfortable for us. We should be able to afford it and save on top of that.

myafai

It doesn't seem that the Bank of Ireland are too generous with their existing customers, rates I'm being offered are for 75% LTV since they either have 60% or 75% :-

Fixed rate deals with no fee's
2 yrs @ 2.29%
3 yrs @ 2.69%
5 yrs @ 3.09%

Hard to tell if these are any good, I see much cheaper advertised elsewhere whether that's what people end up with is another matter. Might have to go down the L&C route

Beckyy

I take it you're not intending to move in the next 5 years?

myafai

No - no intention of moving Becky, circumstances permitting..

termhero

myafai wrote: »

It doesn't seem that the Bank of Ireland are too generous with their existing customers, rates I'm being offered are for 75% LTV since they either have 60% or 75% :-

Fixed rate deals with no fee's
2 yrs @ 2.29%
3 yrs @ 2.69%
5 yrs @ 3.09%

Hard to tell if these are any good, I see much cheaper advertised elsewhere whether that's what people end up with is another matter. Might have to go down the L&C route

Personally I'd go for 2 year fixed. By the time you weigh up fees/potential hassle with being approved etc it seems like a good deal.

Not the best sure, but not anything to lose sleep over in my opinion.


Do they allow you to overpay?

myafai

You're right it's not a biggie or it wouldn't have been if Bank of Ireland had been more flexible with their overpayments. I confirmed with them that the minimum overpayment is £500 a month (yes minimum) and overpayments only shorten the mortgage payments not the mortgage term (!!!!!!). If it wasn't for that I wouldn't have been shopping around.

Anyways, got in touch with L&C and they put the following infront of me yesterday.

Coventry Building Society
2.39 % fixed for 3 years - no fee (65% LTV)
17yrs
£513 payment (on 86k mortgage)

With the flexibility of adding overpayments that actually reduce the mortgage term time (limit of 10% p.a). So we plan to throw £150 a month on top to start with which should reduce the term time to 13.2 years (if we're consistent). Seems very reasonable with me...

termhero

myafai wrote: »

You're right it's not a biggie or it wouldn't have been if Bank of Ireland had been more flexible with their overpayments. I confirmed with them that the minimum overpayment is £500 a month (yes minimum) and overpayments only shorten the mortgage payments not the mortgage term (!!!!!!). If it wasn't for that I wouldn't have been shopping around.

Anyways, got in touch with L&C and they put the following infront of me yesterday.

Coventry Building Society
2.39 % fixed for 3 years - no fee (65% LTV)
17yrs
£513 payment (on 86k mortgage)

With the flexibility of adding overpayments that actually reduce the mortgage term time (limit of 10% p.a). So we plan to throw £150 a month on top to start with which should reduce the term time to 13.2 years (if we're consistent). Seems very reasonable with me...

Totally agree, good luck with it