Short Term Mortgage

oohgreta

Hello - I was hoping someone could give me a bit of advice!! Our house is currently on the market but our fixed term mortgage will become variable in December. Given that our mortgage is currently 112,000 we are a bit concerned!! We don't know whether to go with a mortgage lender and just transfer the mortgage with them when we move (our aim is to reduce the mortgage to about 60,000 by downsizing!) or find a special deal if there are any out there! With the possibility of 3 reductions in interest rates in the next year i don't really want to be stuck for several years with a high rate!

merlinthehappypig

It all depends on your financial circumstances. If your mortgage is fairly small compared with your income, you have a good credit record and a decent amount of equity in the house, you ought to be able to transfer to a decent deal. It's unlikely to be at anywhere near the rate you originally fixed at 9you don't say when that was) but at least you would know what your payments will be for the next fixed term.

If your financial circumstances are a bit strained, then you might struggle to re-mortgage at a good rate as many lenders have tightened up their criteria in recent months.

As far as interest rates are concerned no-one knows what will happen. It is pssible that there will be three rate reductions in the next year - it's equally possible that there might be three rate rises, as inflation is continuing to rise, whatever the official figures might say.

I would do what is best for you at the time you need to make the decision. Go with what you can afford, keep an eye on external factors by all means, but don't let them be the overriding criterion.

Don't assume that buying again immediately is necessarily the right thing for you either. It may well be, but if you are struggling financially it might give you time to re-group and get back on your feet.

oohgreta

Oh dear - I thought the interest rate decrease was a given!! Our financial circumstances aren't great but they're not the worst (although not much room to save at mo). We're bringing in around 2000/month and our mortgage repayments are currently 710/month. My husband is the only one working but I'm actively looking for work having spent the last 7 years looking after small children, so we could be looking at a monthly income of around 2500/month in the near future. Our equity on the house is around 150,000 but the market is slow (we're in N Ireland) so we don't think we'll sell until the middle of next year - we're in no hurry. Our credit rating is good although a small overdraft and small amount on the credit card. What we're looking for is a good mortgage deal to tide us over until we sell (in case we choose to rent for a while) and one that doesn't tie us in (at all/ for too long). Our current deal has been for 2 years fixed term.

merlinthehappypig

The problem that you will find is that all the best mortgage deals will tie you in for a fixed period, often quite a lengthy one and you will almost certainly have to pay a fairly steep penalty (often £1000's) to settle the mortage early.

In your situation it sounds like the best you can do is swap to a variable rate when the fixed period ends, which your mortgage will almost certainly do by default anyway. If you are going ahead with the downsizing this should only be for a limited period anyway (assuming you can sell your house, which is a discussion for a different day!).

Hopefully one of the excellent financial advisors will be along shortly to help, but I can't see any way that your payments won't increase in the short-term as interest rates were a lot lower two years ago.

Any advantage is fixing your rate at a slightly lower level is almost certainly going to wiped out by any early settlement penalty if you redeem the mortgage early.

As for interest rates decreases I think the media might think a rate reduction is a given, but last month they were predicting a definite cut this month, now they reckon rates will stay the same. Bottom line is no-one knows.

poppy10_2

Relying on 3 rate reductions next year is a very risky strategy - with inflation roaring ahead, rates could just as easily go up.

oohgreta

Surely there must be some mortgage 'products' on the market for people in our situation??

CCCele

oohgreta wrote: »

Surely there must be some mortgage 'products' on the market for people in our situation??

You are unlikely to get a good deal for a short term. Mortgages are usually long term, and companies want to tie you in long term. If there were good short term deals, people would just hop between them instead of using longer term deals.

If you find a new mortgage, then sell the house and downsize, there will still be redemption fees based on the amount of the downsize.

TimDJ

How about a Woolwich lifetime tracker. Rate is not amazing - 6.02% at present, variable, but no fee and no early repayment charge.

Will be cheaper than your current mortgage's Standard Variable Rate which will be 7.75% or something stupid!

http://www.personal.barclays.co.uk/PFS/A/Content/Files/CST_ratesheet_241007.pdf

homer_j_3

service levels with woolwich are poor though and if you feel this is the best option, be prepared for a long slog through the application and remortgage.

If you are only looking for a deal for what will seem less than a year, fee free no tie ins will save you money in comparison to the variable rate but consider exit fees and switching costs as that may not save you as much money as you initially thought.

There are fixed rate products with no tie ins which may be equally suitable, just may not be as cheap as the tracker rates.

You live in Northern Ireland so there may be some consideration as not all lenders will lend there.

A_Nice_Englishman

Lets do some figures.

You have a mortgage of £112000 on which your current deal will end in December and you are thinking of moving six months later in mid 2008.

In six months you will pay 6.02% x 6/12 x 112000 = £3472 in interest if you go with the Woolwich mortgage TimDJ mentions.

If you stay with your current lender and their SVR is 7.75% you will pay 7.75% x 6/12 x 112000 = £4340.

A difference of £868

Woolwich charges will include a valuation fee of £295, a completion/cheque fee of £35 and a redemption fee of £275. Total £605.

Then there will be solictors fees on top.

It doesn't look like it would be worthwhile to me.

MortgageGenie

A_Nice_Englishman wrote: »

Woolwich charges will include a valuation fee of £295

The Woolwich do not charge valuation fees on remortgages.

Maybe just out of reach however the C&G also have a lifetime tracker at BOE + 0.23% - it has an upfront fee of £99 but no tie in or backend charges.