Remortgaging - Two options, but which to choose?

italianie

I'm ready to move away from my One Account 4% Current Account Mortgage, but need a bit of a push to help me make my mind up on which option to go with.

I'm looking to fix for 5 or 10 years and make over payments with any disposeable income I have left at the end of the month. I have a mortgage of 44,000 left to pay, and I tick the boxes to get the better 60% LTV rates.

My somewhat optimistic plan with remortgaging, is to pay the balance off over 5 years, whilst switching to a competative rate of interest over what I currently, the ultimate goal of being mortgage free in my early 40's!! However, in terms of affordability I've realised that would be squeezing things, so I'm now looking at taking the mortgage over a longer term of either 7 years or 10 years, but with the option of overpayments to make my original target within reach. If I do have the extra funds spare each month, I can simply pay off more to try and achieve the 5 year goal, but nice to know if I don't find the spare funds I just pay it over the original term.

I've narrowed down my choice to just two products, the First Direct 5 Year Fixed Fee Saver 1.94% with no fees and First Direct 10 Year Fixed Fee Saver 2.49% also with no fees. Both mortgages allow £15000 worth of yearly over payments, which is more then enough buffer for me to pay extra each year.

My options are:

Option 1 - First Direct 5 Year Fixed 1.94% Fee Saver.

I would take a 7 year total term on the 5 year fix 1.94% rate. This gives a £561 Monthly Payment, Interest is £3095 across the term without taking any overpayments into consideration. Then I try and overpay to get it closer to bring the term down to 5 years.

Pro's - It's shorter term and I could be mortgage free earlier. Can make top up the overpayments to reduce the term closer to my 5 year goal. Will pay significantly less interest then with the 10 year fixed.

Con's - Higher Montly Payment means less disposable income and monthly financial flexiblity, it's in the safe zone of affordability with current pay but probably means staying put job wise. I would have less flexibility to move job (I might decide to move). Also if the interest rate goes up when the fixed term is over in 5 years, and I haven't managed to overpay, I could end up paying more then on the 2.49% option.

Option 2 - First Direct 10 Fixed 2.49% Fee Saver

I take a longer 10 year term on their 10 year fix at 2.49%. £415 Monthly Payment, Interest is £5754 across the term without taking overpayments into consideration. I still try and overpay as much as possible to bring the goal closer to 5 years.

Pro's - Lower monthly payment, more disposable income each month, more montly financial flexibility. Fixed rate for 10 years, meaning total security against interest rates hikes and 2.49% is still low compared to previous years. I can still make over payments and reduce the term and interest paid. More flexibility to move employment if I want to make a side ways move and take a pay cut and gain job satisfaction, peace of mind, less stress.

Con's - More interest over the term, well by approx .5%. Longer term means I still have a mortgage to pay for up to 10 years which is longer then I had in mind, unless I make the overpayments.

So its only £146 difference between the two on a monthly basis, might not sound significant, but factoring other bills, it feels like a nice buffer to fall back on.

So in summary it comes down to this:

Do I take short term pain and push myself to achieve being mortgage free early (5 to 7 Year) but live a little tighter for the next 5 years. Alternatively should I go the 10 year longer route, giving me additional security, flexibility and disposable income.

I guess the final compromise might be taking the slightly better 5 year fixed rate but starting the term at 10 years and leaving it to chance on whether I can overpay, but don't like the idea of interest rate being left to chance in 5 years time.

Am I overlooking the potential of overpayments ?

If I go the 10 year fixed route and find I have money spare at the end of the month (this is quite normal for me), then I can no doubt wittle the term and interest down anyway. This might make the difference of the interest paid between 1.94% and 2.49% insignificant, especially if I start throwing larger monthly amounts at the outstanding balance. So perhaps it's a no brainer to go the 10 year fixed for peace of mind and knowing I can achieve similar with minimal difference in interest paid.

I know I should probably seek a financial advisors opinion, but if anyone can help me make up my mind, then I'd welcome your advice.

italianie

Guess my post might be a bit long to digest LOL

getmore4less

if your target is 5 years.

Do the 5y fix over 10y(£404pm) the overpay the limits are withing the 5y(£770) target payment.
if you hit a ERC limit set up monthly saver(s) for the surplus

once set up the term is mostly irrelevant it is what you pay that matters.


in 5 years time on the 5y fix over 10 years at £404pm even if you don't overpay you will only have £23k left rate is much less of an issue on the smaller amounts.

pay £415 min and you are left with £22,350, on the 10y fix you would have £22,340 £1k more.

on £22,350 over 5y with a £415 payment you can take a rate of 4.34 a rise of 2.4% over current 5y fix.

italianie

getmore4less wrote: »

if your target is 5 years.

Do the 5y fix over 10y(£404pm) the overpay the limits are withing the 5y(£770) target payment.
if you hit a ERC limit set up monthly saver(s) for the surplus

once set up the term is mostly irrelevant it is what you pay that matters.


in 5 years time on the 5y fix over 10 years at £404pm even if you don't overpay you will only have £23k left rate is much less of an issue on the smaller amounts.

pay £415 min and you are left with £22,350, on the 10y fix you would have £22,340 £1k more.

on £22,350 over 5y with a £415 payment you can take a rate of 4.34 a rise of 2.4% over current 5y fix.

Your reply actually makes more sense to me, 5 year fix over 10 years at £404, I think that might be the best way to do it. Then I can over pay as you mention and see what's left if anything. I just need to decide if it's worth looking at that ATOM mortgage, the 1.29% 5 year fixed that is advertised but it has a £999 fee I think. I'm also not sure if it allows overpayments. Probably not much in it, when you take into account there is no fee with the First Direct 1.94% 5 year fixed.

Last thing would there be any point at all staying with the One Account, or am I just going to pay more because of the 4%. I'm not sure if there'd be any difference with it being offset, as I know you pay the interest at the beginning with repayment mortgages, where as this wouldn't bet the case would it with my CAM?

GardenGirl77

Atom also do a 5 year fix at 1.64% with no fees, it's what we have just applied for. They do allow overpayments of 20%. I think the 1.29% rate has been withdrawn though.

italianie

GardenGirl77 wrote: »

Atom also do a 5 year fix at 1.64% with no fees, it's what we have just applied for. They do allow overpayments of 20%. I think the 1.29% rate has been withdrawn though.

Gosh that was quick, thought the 1.29% was only just released a few days back. The 1.64% sounds like a cracking deal. Is it right you have to apply through a broker, rather then directly through them. Is there an additional fee or commission to the broker for this?

getmore4less

italianie wrote: »

Your reply actually makes more sense to me, 5 year fix over 10 years at £404, I think that might be the best way to do it. Then I can over pay as you mention and see what's left if anything. I just need to decide if it's worth looking at that ATOM mortgage, the 1.29% 5 year fixed that is advertised but it has a £999 fee I think. I'm also not sure if it allows overpayments. Probably not much in it, when you take into account there is no fee with the First Direct 1.94% 5 year fixed.

Last thing would there be any point at all staying with the One Account, or am I just going to pay more because of the 4%. I'm not sure if there'd be any difference with it being offset, as I know you pay the interest at the beginning with repayment mortgages, where as this wouldn't bet the case would it with my CAM?

get that silly notion(nonsense) out of your head.

How much you owe and the interest rate determine how much interest you pay.

getmore4less

if you want to find out more about the Atom products you need a broker but you can do some pre research using the intermediary site.

the 1.64% over 10y would be £398pm

£44k after 5y paying £415pm

2.49% £23,340
1.94% £22,353
1.64% £21,827

thats another £500 on top of the £1k with FD.

GardenGirl77

Gosh that was quick, thought the 1.29% was only just released a few days back. The 1.64% sounds like a cracking deal. Is it right you have to apply through a broker, rather then directly through them. Is there an additional fee or commission to the broker for this?

Apparently it's been popular! Yes you do have to go through a broker - I used London and Country who have been great, they keep you informed throughout. There are no extra fees to the 1.64 rate :j

italianie

Well I've contacted a local broker about the Atom rates and I have indeed missed the boat. I've given him my figures though and he's going to have a look what else is out there. Shame the 1.64 would have been the sweet spot.

GardenGirl77

That's such a shame, but the market seems competitive​ at the moment so hopefully more good deals will be available soon. Good luck!