Mortgage Renewal

Andy_89

Hi All,


The 2 year fixed term of my mortgage is about to come to an end.


I could save up to £250/month (paying £850 atm) looking at the rates on different providers. I have 13% equity (up from 5% when I first bought it)


As this is the first time I have ever renewed a mortgage any advice would be greatly received.


Do I take the £250 and save it? Do I add the £250 to the payment ?


I am comfortable to keep paying £850 so I would like to understand what my best option is.


Cheers,


Andy

tightasagnats

I believe that in deciding whether to save it or overpay you'd need to consider whether a) you'd like a pot of money you can get easy access to in an emergency and b) whether the savings rate after any tax paid is greater than the mortgage interest rate you're paying.

Others may have other bits of info worth considering.

Nick_C

tightasagnats wrote: »

I believe that in deciding whether to save it or overpay you'd need to consider whether a) you'd like a pot of money you can get easy access to in an emergency and b) whether the savings rate after any tax paid is greater than the mortgage interest rate you're paying.

Others may have other bits of info worth considering.

If you don't have an emergency fund, this is your opportunity to build one up.

If you do, then its b. I'm currently paying 2.5% interest on my mortgage, but getting up to 5% interest on my savings. Up to £1000 a year interest will be tax free from April, so if you have savings accounts that pay annual interest you may already be earning interest tax free.

Bear in mind that if you remortgage with a different lender you will incur legal fees. Factor these, and any arrangement fee, into your calculation.

The key thing is to put aside that spare money. When interest rates rise, you will need some of it as your repayments go up.

If you have any personal loans or credit cards that you are paying interest on, these should be your top priority.

Andy_89

Thanks for the advice!


After saving for our house (2013/14) Then wedding (2014/15) we have been spending money on treats - watches, clothes and holidays to 'live' before kids come along.


We have a minimal 'emergency pot' at the moment - but that is for things like washing machines, ovens when they break.


Do I save the money and pay it off my student loan? It is the only other substantial loan I have, though at a minimal rate, which is costing me nearly £200/month.


Is now the right time to have a long term fixed?

Nick_C

Check what the interest rate is on your student loan, and compare it to how much interest you would get in a savings account, or how much interest you would save by paying off your mortgage. Generally though repaying student loans early is not a good idea. The loan is usually cheap, and if your circumstances change for the worse you might be able to stop paying in the future. Many people will never repay their student loans, so paying extra is a very bad idea for them.

http://www.slc.co.uk/services/interest-rates.aspx

Fixed rates are a gamble. That's got to be a personal decision. We all expect interest rates to go up sometime, but no-one knows when. A fixed rate will help you to budget as you will know what your repayments will be, but you are likely to be paying more than you need to in the early part of the term.

Personally, I've gone for a lifetime tracker. I know I will always pay a fair rate (BoE base rate +2% in my case), a rate increase won't cripple me, and I have the flexibility to make unlimited overpayments or change lenders. But there are so many variables, what's right for me may not be right for you. (I intend to overpay or make a capital repayment when my mortgage interest rate exceeds the rate on my savings).