Need 75k- mortgage, loan or something else?

newlease

AnotherJoe wrote: »

The interest rate will be much lower on a mortgage . By five year mortage I take it you meant five year fixed rate rather than a five year term??

If so, let's say it's twenty year mortage with a five year term fir which rates are fixed, If there is a maximum amount you can overpay (which there often is) then save the difference into a high rate account and use that to pay off the rest when the five year term ends.

If you mean a five year mortage, eg all paid off over five years, the benefit would be a lower interest rate than you'd get for a loan, plus the ability to get it in the first place since you are very unlikely to get an ordinary loan for that much money.

The loan is out of the question due to the amount. The borrowing rates for a mortgage are lower than that of a loan, you are correct.

I had thought (wrongly, as I have found out) the shorter term 5 year mortgage would benefit from cheaper borrowing rates than the longer term mortgage of 25 years. In my comparisons (Santander, Nationwide, etc.) the lowest rate is achieved by being below 60% LTV and the rates are identical whether it is the shortest 5 year or longest 25 year for a given mortgage option.

Since a shorter term does not reduce the rate, it makes most sense for me to look for the cheapest longer term option that is without ERC. One with a 2 year tracker or even a lifetime tracker seems best fit. I don't see how the "insurance" from a more expensive fixed option makes sense in my case where I would be overpaying by several multiples.

andyfromotley

newlease wrote: »

Since a shorter term does not reduce the rate, it makes most sense for me to look for the cheapest longer term option that is without ERC. One with a 2 year tracker or even a lifetime tracker seems best fit. I don't see how the "insurance" from a more expensive fixed option makes sense in my case where I would be overpaying by several multiples.

Because you have no idea what is going to happen to interest rates. You can get a five year fix for just over 2%. but it will carry an ERC
put all your extra into saving, you are obviously good at saving and wont be tempted to spend it. As soon as your 5 years is up pay it off.
That way you get the security of a fixed interest rate for a very small penalty of a a slightly higher interest rate and you know its done and dusted in 5 years.
But it really isnt a biggie either way. Nearly all mortgage lenders are going to welcome you with open arms, so just crack on.

jamesd

newlease wrote: »

So, basically get a 25 year without ERC and pay in as if it were a 5 year?

Right.

newlease wrote: »

I am just unsure what you mean with this: "Without making an arrangement with the mortgage lender that would show negatively on your credit report or might be on terms that you don't like." Is this if I take a 5 year (or any for that matter) and am unable to pay at the higher rate?

Yes. Say if you lost your job they would probably make you pay at the full five year rate until you ran out of savings. Then they would make an arrangement that would show negatively on your credit report. By contrast, if you had a 25 year term you could cut the payment immediately to the 25 year level and your savings would last significantly longer with no negative credit report entries for that longer time.

There are flexible mortgages that allow withdrawing overpayments but that withdrawing is at the discretion of the mortgage lender and they can be expected to refuse as soon as you tell them you're unemployed. An offset mortgage would work, though, since the money in the offset account is yours by right.

bargainbetty

Do note that if you get a fixed rate mortgage you may be limited in the amount of overpayments you can make during the term. I am limited to a maximum of 10% of the total loan value during a calendar year. If you wish to overpay beyond that, you deposit the funds in a savings account, wait till the fixed term expires and then pay a huge chunk off, before applying for a new fixed rate.


As a cautious person, I would suggest that a fixed rate would suit you as you would have an exact knowledge of the rates and fees for a determined time.


I would also take the mortgage for a longer period than you initially think you need. Should your circumstances change, having a 'drop zone' safety net would be a luxury that many are not lucky enough to have, and could make a huge difference to you.


And please don't panic about it being a mortgage rather than an unsecured loan - personal loans of that size are necessarily secured against physical assets. Just the way it is.