Should I stay or should I go?

Joe__Strummer

Hi folks

I would appreciate hearing some different opinions about what I should or could do with my mortgage.

My situation is:

• Bought house three years ago, fixed three year deal at 3.99% which meant repayments of £568 a month.
• Fixed deal has now ended. I have reverted to the banks variable rate of 2.75%. This is calculated as Bank of England base rate + 2.5%. If I stay with this lender, I will be on this variable rate for the remainder of the mortgage. Mortgage repayment is now approx. £508 p/m.

I know I could go and get another fixed rate deal which would bring me down to a lower interest rate and lower repayments initially. But all these deals revert to a standard variable rate when they’re completed, which is usually around 3.75%.

So I’m unsure what is best for me, I don’t even know what sort of calculation I could do to help me work it out. I still have 22 years left on the mortgage so do I go for a low rate for 3 or 5 years now and then hope to go into another fixed deal at the end? One other thing to say is that I hope to be able to make overpayments on my mortgage from now on – not huge amounts, probably £100 a month on average. At the moment, no longer being on a fixed deal, I can do that without penalty.

I’m interested in hearing your thoughts and advice, I would really appreciate it!

Thank you

cadmonkey

Dont some mortgages automatically switch to the Lifetime Tracker, mine did at 0.95% above BOE rate mortgage.

Joe__Strummer

Yes - I think that's pretty much what has happened me. I'm now on BOE base rate + 2.5% for the rest of the mortgage.

getmore4less

I think a base + 2.5% is a little high compared to the best short term deals available.

With around a £100k mortgage

On good LTV the fixes are in the base +1%-1.5% + fees which for some lenders are low.

What's the current LTV

It is possible that you could end up with a lower debt by changing but you have to factor in the risk that your ability to change later may change.

if your current lender has competitive retention deals and the regulators don't mess with these deals a chain of deals could well be beneficial long term.

£100pm with knock nearly 5 years of your mortgage.

if you have the best retention deal from your lender for say 2&5 years can crunch some numbers with your £608m month payment.

Joe__Strummer

I think my LTV is around 71 - 72%? Hope my lender agrees

AnotherJoe

Joe__Strummer wrote: »

Hi folks

I would appreciate hearing some different opinions about what I should or could do with my mortgage.

My situation is:

• Bought house three years ago, fixed three year deal at 3.99% which meant repayments of £568 a month.
• Fixed deal has now ended. I have reverted to the banks variable rate of 2.75%. This is calculated as Bank of England base rate + 2.5%. If I stay with this lender, I will be on this variable rate for the remainder of the mortgage. Mortgage repayment is now approx. £508 p/m.

I know I could go and get another fixed rate deal which would bring me down to a lower interest rate and lower repayments initially. But all these deals revert to a standard variable rate when they’re completed, which is usually around 3.75%.

So I’m unsure what is best for me

You keep switching to 2,3 or 5 year fixes.

The only complicating factor is arrangement fees. eg its plain that (say) a 2 year fix at 1.5% is better than your current rate of 2.75%. No brainer. However, if there is (say) a £1,000 arrangement fee for the 1.5% rate, it may or may not be cheaper. For that you need to know how much interest and fee you'd pay on both deals. Bottom line, if the total interest on a fix plus the fee is less than the current rate, switch.

And keep switching when it ends. Dont worry about what happens when it ends since you'll rinse-and-repeat unless your circumstances are likely to change significantly so that affordability might problematic. Classic case would be, couple have kids, one gives up work. Even then you can usually go back to lenders standard retention rates for another fix which is better than SVR.