Reducing mortage to 10 years and 10 yr fix.

Chilledbud

Good afternoon everyone.

I was wondering if people could share their thoughts on the following musing.

We are a three months away from the end of our 5 year fixed with Britannia on a rate of 3.19%, paying £921 a month. It was taken out on a 20 year duration.

Due to fault in tax and N.I, it turned out that my year in University while in the NHS, I shouldn't have paid tax and N.I, yet my employer had been taking it off. As a result a lump sum of £10k was overpaid to the mortgage without penalty last year.

We will have around £120k left on a £300k house when remortgaging.

As a Nationwide customer we can save £500 on the already very competitive rate mortgage, and the one that's now caught my eye is the 10 year fix @ 2.69%.

The thought behind this is actually paying off the mortgage in that 10 year fixed by upping the monthly payments.

Monthly payments will be £1,142 so only a couple of hundred more than now, while both my wife and I will have yearly wage increases of £900 and £1300 for the next 5 or so years.

I had a play around with taking the 5 year fixed instead, and from memory the next 5 years would need to be coming in at 4.5% or less to have been a better deal than fixing now for 10.

While we can't predict the future of interest rates, surely at at 2.69% for 10 years the gamble is very low compared to hoping that we can have a 5 year deal below 4.5% in 5 years time.

We don't expect to have any reason to be overly cautions about ERC, as we can pay 10% of the total in overpayments per year, but have no expectation with two children under 2 to be looking at doing so in the next 10 years. The only major change would be both my parents dying and leaving a good will behind, but that's not likely as both are fit and healthy.

We can't be 100% sure we wouldn't move, but again Nationwide T&C seem to be favourable should we need to, and it's likely we would only move to a more experience house and therefore adding not reducing our mortgage.

Am I missing anything before we start the application process?

new_owner

Could you not take a fixed 5year and over pay by 10% per year then? you should get a much better deal than 2.6% for a fixed 5 year.

Looking to clear the mortgage over 5-6 years?

Seems like 10 years is a very long time to fix your life to....

Thrugelmir

Do what's right for you now. If you would prefer peace of mind then apply for the 10 year fix. Interest rates are never going to be so low again in your lifetime. As far as viewing fixing for an extended term as a gamble. How big is the upside if you were to take the 5 year. While there's no certainty, the downside could be signficant.

dimbo61

Why don't you take the 10 year fix but keep the same term you have now !
Overpay every month so you are paying off the mortgage over the Ten years.
Now you might have problems in years 7/8/9 with overpayments exceeding the 10% max limit but I am sure in a few years you will find a savings account to pay a higher rate of interest than your mortgage rate.
If for any reason you are struggling with money you don't have to overpay.
If you reduce the term to 10 years then you have to make the higher payment every month.

getmore4less

10y fix Y5 Y10
£120,000 @ 2.69% £1141pm £64,065 £88 10y interest £17,008
5y fix
£120,000 @ 2.19% £1142pm £61,594
followon 5y
£61,594 @ 4.048% £1141pm £88

if rates did not change then the interest on the 2x5y would be £13,363 a saving of £3,645 over 10years.

if rates went up 1% then the interest is £15,097 savings down to £1,911.

Run some numbers with a longer term to give you an idea with a lower payment option(can still over pay to a 10y term).

Chilledbud

Thank you everyone for your replies, it gave me something to think about overnight.

Dimbo61 - I think this might be our best way forwards. Lock into a 10 year on a 2.69% rate with a monthly payment of £810.

I've had a quick round of calculation on a 5 year fix of at 1.99%.

After 5 years we would need a rate of 4.6% or less to have been better off on a 5yr x 2. BUT...for every 1% above the 4.6% we would be £1k worse off. So if we had to remortgage at say 7.6% it would have been a £3k loss of a gamble, at 10.6% a £6k loss. With those kind of stakes and with such uncertainty currently in the mix with brexit and so on, I'll be looking at a 10 year fix to make it a safe hand of cards with little to have gained but a lot to have lost.

So a 15 year term over a 10 year term on the fixed 10 years.

Nationwide state "You'll pay an Early Repayment Charge (ERC) if you overpay by more than 10% of your original mortgage balance in a year, or if you exit your mortgage early."

So if I'm reading that correctly, we can over pay £12,000 per year, not 10% of the start of year balance that we've had with Britannia.

That makes a massive difference in our though process. We would be aiming to at least match the 10 year payment of £1,141 per month, so overpaying £300 a month on a 15 year term of £810 a month, with a hope of maybe £500 if our rainy day savings are doing well.

We're never going to be overpaying by £1,000 a month, so that limit is high enough even if we magically come into money we can put a lump sum in and have some to spend on a kitchen etc.

That also changes negates the highlighted year 7/8/9 overpayments dimbo61 pointed out, meaning that should overpayments be going well we could actually be mortgage free by late year 8 or early 9!

getmore4less

I get the follow on for 1.99% as 4.93% using a full erm of 10y.

if rates don't rise a saving of over £5k

Also nearly 3% above current rates or 11-12 rise in 5 years