2yr at 2.54% and overpay or 4yr at 3.44%?

gazfocus

Hi all,

My fixed deal with Halifax is coming to an end on 31st August and I'm trying to decide what to do regarding moving to a new deal.

Unfortunately, I don't have the luxury of shopping around as some bad choices since buying the house have left our credit reports in a bit of a mess (ok, a lot of a mess), but I've been advised that Halifax won't perform a new credit check if moving to a new deal with them.

Our LTV will be 71.93% by 31st August, so looking at the current deals Halifax are advertising, we could get either a 2 year fixed rate of 2.54% or a 4 year fixed rate of 3.44%

We're currently on a 2.69% deal, costing us £611 per month. The 2.54% deal will cost us about £595 per month whereas the 3.44% deal will cost us about £653 per month.

My initial reaction is to go for the 2 year fix as it will be a lower minimum monthly commitment, and if we have spare money available, we can always overpay, but at the same time, I don't want to end up with a high rate after 2 years.

So, which would you go for?

gazfocus

Anyone any thoughts?

R_P_W

gazfocus wrote: »

Hi all,

My fixed deal with Halifax is coming to an end on 31st August and I'm trying to decide what to do regarding moving to a new deal.

Unfortunately, I don't have the luxury of shopping around as some bad choices since buying the house have left our credit reports in a bit of a mess (ok, a lot of a mess), but I've been advised that Halifax won't perform a new credit check if moving to a new deal with them.

Our LTV will be 71.93% by 31st August, so looking at the current deals Halifax are advertising, we could get either a 2 year fixed rate of 2.54% or a 4 year fixed rate of 3.44%

We're currently on a 2.69% deal, costing us £611 per month. The 2.54% deal will cost us about £595 per month whereas the 3.44% deal will cost us about £653 per month.

My initial reaction is to go for the 2 year fix as it will be a lower minimum monthly commitment, and if we have spare money available, we can always overpay, but at the same time, I don't want to end up with a high rate after 2 years.

So, which would you go for?

Very likely you will end up with a higher rate after two years. If u don't want that then go for the four year one

marathonic

At 71.93% LTV, I'd go for the 2-year deal. It's cheaper and, although rates are likely to be higher in 2 years time, the fact that you should be below 70% LTV at that time should mean that the rate isn't TOO much higher.

pjread

3.44% over 4 years vs 2.69% over 2 years...

My attitude would be this; if you pay 0.85% more for 2 years that is as insurance against 'higher interest in 2yrs' and only buys you the 3.44% rate for 2 more years.

Ignoring the balance reduction (yr3/4 will be x% of a slightly lower capital), very simplistically you'd be about even if you took the 2 years at 2.69% then got a 3.44% + 0.85% = 4.29% 2yr fix afterwards.

I would be very surprised if rates increased that far in 2 years, so I'd definitely take the 2 year if those are the only two deals you could get. If you're worried, stick the extra £50 a month into a pot in case needed (or overpay with it/use it elsewhere if you could just cover it out of income if push came to shove)

gazfocus

Thanks all.

I too, am leaning towards the 2 year deal and overpaying as much as possible.

Landofwood

What's the current outstanding balance and term? Let's do some maths.

gazfocus

Landofwood wrote: »

What's the current outstanding balance and term? Let's do some maths.

The Outstanding Balance (as of 31st August) will be: £128,043.19
Remaining Term will be: 23 years 8 months

I worked out that if I went for the 2 year deal and overpaid the £58 per month for 2 years, I would pay off an extra £1429 over the 2 years.

Landofwood

Have you considered putting the money in a savings account instead of overpaying?

First Direct are offering a 6% savings account http://www1.firstdirect.com/1/2/savings/regular-savings-account

If you put the £58 per month in for 2 years you'll end up with £1,475.05.

pjread

Landofwood wrote: »

Have you considered putting the money in a savings account instead of overpaying?

First Direct are offering a 6% savings account http://www1.firstdirect.com/1/2/savings/regular-savings-account

If you put the £58 per month in for 2 years you'll end up with £1,475.05.

Less tax,,,

Landofwood

pjread wrote: »

Less tax,,,

Yes obviously