Any downside to fixing?

chorlton

Hi there. Just want to check i’m not missing anything obvious.

We are in pretty good shape financially with just over 6 years left on our relatively small mortgage. (Balance = under £30k on a house valued £400k+)

Current mortgage is BMR tracker with Nationwide @ 2.25%

We have no plans to move and although we have made some small overpayments, with eldest going to Uni later in the year we aren’t likely to have significant amounts to overpay in future - is there any reason not to sign up for a 5 year fix with nationwide @ 1.99% - no fee and £250 cash back?

Seems like a no brainer, but I’m always suspicious of something too good to be true!

thanks!

AnotherJoe

How much would a 2 year be?

chorlton

2 year is at 1.59%- payments would only be about £5/month less than 5 year fix, and we would then have 4 years on SMR which is currently 3.74% and could go up.

getmore4less

£30k 6 years 2.25% £446pm interest £2098

£29750 5y 1.99% £446pm interest £1758 left to pay £4748

£4748 3.74% paying £446 11months interest £88

if rates don't change you save £252 interest.

[STRIKE](£250 of that cashback)[/STRIKE]

along with £250 cashback a total of just over £500

[STRIKE]if rates don' move for a few years then go up you could be worse of.[/STRIKE]
up the payment to £521pm paid off in 5y interest £1530

total saving around £800.


Edited to fix the numbers

chorlton

Thank you for the maths, i think that makes things clearer - Its a gamble on when rates will raise, with significant but not life changing amounts at stake....

So i reckon the best of both worlds would be to go for the 5 year fix, but also try and try save around £100 month to pay off some or all of capital left at the end of fix if rates are unfavourable ?

AnotherJoe

It's really going to make little difference what rates are for that last year.

I wouldt even bother with putting aside overpayments, you haven't stated what your pension position is but the odds are heavily in favour of putting that money into a pension, especially if you are high rate tax payers, but even if not. You won't be too far off a time where the money is accessible, it may help you retire a little earlier than otherwise, and if there is any additional employer contribution to be gained, then it's all the more valuable.

It's easy to look at the one target of paying off the mortgage and ignore the bigger picture of your overall financial position.

getmore4less

working on 2y deal @ 1.59%

£30k 6 years 2.25% £446pm interest £2098

Y2 £20,442 interest £1,146

£29750 2y 1.59% £446pm

Y2 £19,842 interest £796

if rates don't move so you roll over 1.59% total interest £1,419


thats your best case around £950 saving.

(made an error above the interest saving is on top of the £250 cahsback so around £500 on the 5y fix and 1y followon.

getmore4less

Another way to look at this is the break even interest rate in the last year.

£30k 6 years 2.25% £446pm interest £2098

total paid £32,098

£29750 5y 1.99% £446pm interest £1758 left to pay £4748

total paid £26760

left £5338 from what you could have paid.

to pay £4748 with less than £5338 the interest needs to be below £590.

still paying £446pm the rate needs to be below 22.25%

Unlikely that rates will go up that much.

chorlton

Thanks again, we decided that the certainty of a 5 year fix was our priority - and it turned out better than i'd realised because we have 2 mortgages after taking out an additional loan a few years ago so get 2 x £250 incentives.
(And yes AnotherJoe, you raise a good point about pensions. We both currently have decent pensions through work, but for me in particular a significant chance of redundancy before retirement, so really need to prioritise getting the most out of it while i can.)

getmore4less

Nationwide are giving money away on these small end of life mortgages

£30k 6 years 2.25% £446pm interest £2098

£29500 5y 1.99% £446pm interest £1732 left to pay £4472

£4748 3.74% paying £446 11months interest £79

if rates don't change you save £287 interest.