Mortgage deal about to end.. Next steps?

rjmachin

My current 5 year fixed rate mortgage runs until 31st August 2018 at 3.19% interest, with under £86k left. House is valued at £165k, so around a 52% LTV.

Im currently with Halifax, and I can switch to another deal with them 3 months early, so after 31st May 2018.

However, looking at the deals, a new 5 year deal would be at a rate of 3.04%, with no fees, valuations or legal fees.

Im sure last month it was under 3% for a 5 year deal, so I have been looking elsewhere.

FirstDirect have a 5 year deal for 1.94%, with no booking or arrangement fee, but I think I would have to pay a solicitor for the legal fees, not sure how much that would cost. £433 a month for the mortgage

Tesco Bank have a 5 year deal for 2.15%, with no product or booking fees, and they also pay the legal fees (no changes to names or anything needed). £441 a month for the mortgage

However, when I got my mortgage, they did not have the affordability checks, so i'm a bit nervous of that if I switch to a new provider. I would also need to wait until 31 August to avoid early repayment charges.

Regardless, I'm planning on making over payments on the new mortgage (at least £300 per month), which will help reduce the size a lot quicker.

I can see that this is a personal preference, but I would love your opinion on what you would do:

1. Stick with Halifax
2. Switch to Tesco
3. Use something like Habito to find a mortage

Thanks

Thrugelmir

rjmachin wrote: »

Im sure last month it was under 3% for a 5 year deal, so I have been looking elsewhere.

You are correct. Despite no change in BOE base rate. Lenders are very slowly and incrementally edging rates upwards. There are other factors in play as far as the lenders are concerned. Most importantly that lenders do not fund their mortgage books at base rate by borrowing from the BOE.

When making comparisons between mortgages. You need to factor in all the costs of switching lenders. These will be exit fees, legal fees and valuation fees. In addition product fees if applicable. Likewise look at the follow on SVR rates etc.

As the mortgage balance reduces the potental benefits do reduce. Overpaying your current mortgage will provide an instant benefit. There'll come a time when switching lenders may well become uneconomic.

Would an affordability check be an issue? If so remaining with your existing lender and applying online may well be your best option.

sh856531

rjmachin wrote: »

Regardless, I'm planning on making over payments on the new mortgage (at least £300 per month), which will help reduce the size a lot quicker.

This is just a bit of a curve ball and isn't directly related to the question you asked. It could make sense for you though.

Rather than overpay your mortgage, you could consider investing it in either index trackers or well respected savings funds such as Lindsell Train Global Equity or Fundsmith Equity etc.

There is an element of risk to this but our situation has been as follows:

We have had enough money to save several hundred pounds per month for more than 10 years. We could have used this to pay down a mortgage charging a rate of say - 2 - 3%. Instead we invested it in an assortment of funds.

These funds collectively have returned between 7% - 20% per year over 10 years. Accounting for years of underperformance I would say our annualised rate would be something around 11% - 12%. This obviously compounds each year and the compounding effect is extremely powerful.

So - an option for you is to save your £300p/m and let it work for you for the long term. Even assuming the occasional recession we have always bet that over a long enough time period we would make substantially more than 2 - 3%. As long as you do your research this should be true for you too.

Anyway - I know everyone's attitude and appetite for savings/investments varies - I just offer the suggestion for what its worth as it has made us many thousands over the years.

Best Regards

S