What will happen when interest rates rise?

Thrugelmir

katejo wrote: »

True yes I have been lucky. However I have also been sensible in that I have taken advantage of the low rates to reduce my mortgage loan and also improve my house (new kitchen). I could have frittered the money away.

Value when making improvements are often in the eye of the beholder. A kitchen can cost many thousands of pounds. At the end of the day it's still just a kitchen. Like a new car over time it will depreciate and lose value.

Jonbvn

Thrugelmir wrote: »

Value when making improvements are often in the eye of the beholder. A kitchen can cost many thousands of pounds. At the end of the day it's still just a kitchen. Like a new car over time it will depreciate and lose value.

A new kitchen is unlikely to add to the price of the home.

In addition to the above, I just do not understand the logic of overpaying a very low cost loan. Surely it is better to invest/save money in such circumstances, at an interest rate which is higher than your mortgage?

Mummyisbeauty

Jonbvn wrote: »

A new kitchen is unlikely to add to the price of the home.

In addition to the above, I just do not understand the logic of overpaying a very low cost loan. Surely it is better to invest/save money in such circumstances, at an interest rate which is higher than your mortgage?

Yes, if you can find an interest rate higher than your mortgage it is.... or if you have charges relating to overpaying.

Spidernick

Jonbvn wrote: »

In addition to the above, I just do not understand the logic of overpaying a very low cost loan. Surely it is better to invest/save money in such circumstances, at an interest rate which is higher than your mortgage?

I've already explained my reason above. If it was just me then I wouldn't be overpaying at all and would get the better interest rate elsewhere.

midnight_child

I find it amusing that on my online banking I can view both my mortgage (2.29%) and my regular saver (paying after tax considerably more than 2.29% ).


Its disappointing they will only let me invest £250 per month.

CLAPTON

midnight_child wrote: »

I find it amusing that on my online banking I can view both my mortgage (2.29%) and my regular saver (paying after tax considerably more than 2.29% ).


Its disappointing they will only let me invest £250 per month.

you have missed the point

midnight_child

Don't think so, but maybe I needed to explain it better.


The whole basis of how a bank works is that people deposit money in it for safe keeping. The bank lends the money to those who need it to buy a house or improve their business etc. These businesses/home buyers pay the money back over time, but pay interest for the privilege of this service and the risk the bank has taken. The bank in turn pays depositors some of this money as a thankyou for placing their money with the bank.
Crucially, the bank needs to receive more in interest on its loans than it pays out to savers or it will go bankrupt.


I was simply highlighting that at the present time the system is flawed, and it is easily possible to earn much more on savings than you pay on a loan. By opening enough accounts with different banks (FD @6%), Lloy (4% x2), Santander (3%), etc, you could load up literally tens of thousands that would beat the average 60-70%LTV mortgage rates.


Someone with a <2% rate would be mental to pay it off if they had the money to do so. They can essentially use it to run a stooze.

CLAPTON

midnight_child wrote: »

Don't think so, but maybe I needed to explain it better.


The whole basis of how a bank works is that people deposit money in it for safe keeping. The bank lends the money to those who need it to buy a house or improve their business etc. These businesses/home buyers pay the money back over time, but pay interest for the privilege of this service and the risk the bank has taken. The bank in turn pays depositors some of this money as a thankyou for placing their money with the bank.
Crucially, the bank needs to receive more in interest on its loans than it pays out to savers or it will go bankrupt.


I was simply highlighting that at the present time the system is flawed, and it is easily possible to earn much more on savings than you pay on a loan. By opening enough accounts with different banks (FD @6%), Lloy (4% x2), Santander (3%), etc, you could load up literally tens of thousands that would beat the average 60-70%LTV mortgage rates.


Someone with a <2% rate would be mental to pay it off if they had the money to do so. They can essentially use it to run a stooze.

I didn't realise <2% was a typical mortgage rate.

midnight_child

Well it would be typical for those with a large amount of equity, or those who got lucky and took out a tracker many years ago.

Spidernick wrote: »

I have to agree with this. Years ago we opted for a tracker at 0.19% above base rate, more by accident than design, so have been paying a paltry 0.69% for over six years now.

It is these people who likely have the most disposable income left each month (due to very low mortgage repayments), so are the people where the discussion on overpaying vs saving is most relevant.


@spidernick - Why not use regular saver or other fixed term savings accounts. As you would have no access to it during the period, zero risk it gets spent on shoes.

katejo

Thrugelmir wrote: »

Value when making improvements are often in the eye of the beholder. A kitchen can cost many thousands of pounds. At the end of the day it's still just a kitchen. Like a new car over time it will depreciate and lose value.

I improved my kitchen for my own pleasure not to sell the house. I know that it will depreciate but, for the moment, it is much better than the old 80's kitchen which I had before.

I also know that I could invest the money elsewhere but, pyschologically, I like to reduce the mortgage in anticipation of rising interest rates. If someone had been able to tell me, in 2009, that the rates would be the same 6 years on, I might have done it differently.