Fix now and pay £880 or Wait til September?

laura_louise

I know no one has a magic wand, although I'm not sure I need one to be able to predict where interest rates are going this year. 

Just wondered if anyone had any thoughts on the following scenario:

Mortgage with Coventry BS. 
Current balance £88k
Property value £170k
currently paying 1.69% (£334 a month) and overpaying £250 a month. 

My current fix ends in December. I spoke to them on the phone today and they offered me:
- next fix can be taken at earliest 1st September without penalty. 

but i'm concerned about rate rises between now and September.
So, 
- I can fix early now but have to pay £880 (1%). 
- They offered me a 10 year fix for £390 a month, 5 year for £364 a month 
- The advisor says they won't recommend me to fix early because the new payments are higher than my current ones. If i did fix early, they will begin the new rate i fix at up to 4 months in the future so won't need to start immediately. 

I know the advisors on their phone line won't give me a crystal ball to interest rates and will only give me info based on today. But it's pretty obvious where rate rises are going.

What would you do? Pay the £880 (I have the cash available if needbe from savings), or wait it out until September 1st and renew then for free but gamble massive rate changes?

I'm thinking that if rates only go up 1% it's not a huge deal, but it also seems quite likely rates will rise hard and fast. 

I know no one has a crystal ball but I'm curious if anyone has any thoughts on this? My heart is telling me to pay the £880 and have peace of mind, £390 a month is easily affordable and protects me for 10 years. 

I can't help but feel like this is a huge decision. 

fewcloudy

laura_louise said:

I'm thinking that if rates only go up 1% it's not a huge deal, but it also seems quite likely rates will rise hard and fast. If that is what you really think then you should act accordingly, many would not agree with you.


I can't help but feel like this is a huge decision. I don't think it is really.  You can afford to overpay by £250 a month at present time, you may have built up a nice cushion already. And are on a good rate, with a relatively small balance.

.........

K_S

@laura_louise I'd agree with the poster above, you have a relatively small balance and have capacity to overpay, both of which reduce the impact of any potential rate rises.

If you are able to considering a remortgage (new lender) - most mainstream remortgage offers are valid for 6 months so with a fix ending in December, you should be able to secure a rate in late June/early July or so for completion in December.

FYI, a rate is secured when you/broker submits a full application. With lenders like Nationwide, you can even 'reserve' a product for 90 days by doing a DIP without having to put in a full application so that's something that you could potentially do now to secure a rate for completion in December.

If you're only considering a product-switch/product-transfer/rate-switch (staying with the current lender) then of course you'll need to wait for September.

laura_louise

I wish i could do that but my income is low (half what it was) and i'm self employed, despite my low mortgage amount, regular overpayments and decent savings, I fall short on affordability. Being able to transfer would have been ideal but unlikely to be an option.  My low income is making me feel quite risk averse, what with the massive leaps in energy bills and so on. I'm financially in a good position as far as no debt apart from the mortgage and a great credit score but large increases would easily tip the balance into using savings and not being able to make overpayments- hence my nerves. 

Really interesting hearing the feedback from both comments above, thanks so much everyone. 

laura_louise

Posting an update to this situation:

I fixed my mortgage today, the earliest i could do it without paying the ERC. Been a nail biting few months watching the rates rise and rise. This is the deal I got:

4.2% 10 year flexx fixed with Coventry (remortgaging elsewhere isn't an option right now). Fully flexible mortgage no repayment charges or anything.
My repayments will go up to £420 a month.
I did bring my mortgage balance down a nice chunk since my last post about this, I now owe £83.5k which has helped - i paid what would have been the ERC onto my mortgage instead as an overpayment.

Running the figures... the rate i could have got would have been £390 a month. So i'm looking at the delay costing me an extra £30 a month (but no ERC to pay). 

It would have been better to pay the ERC of almost £900, but it would have taken 30 months to break even on the cost. However, I did overpay my mortgage by the same amount as the ERC plus some more, which actually works out to more savings by way of less interest. So on the whole, I made the right decision.

All in all, it has been a stressful few months waiting for the renewal time to roll around but i'm glad it's all locked in now and I have 10 years of stability. 

Good luck to anyone going through this right now, it has been a really confusing/difficult decision to make compared to my usual financial decisions. 

Grass_Roots_2

I've just fixed for 10 years today too - not my usual approach (I'm more 5 years at a time) but I was desperate for the certainty.  I know that none of us have a crystal ball but for me the interest rate difference between 5 and 10 years was so small I thought it was worth it.

laura_louise

Grass_Roots_2 said:

I've just fixed for 10 years today too - not my usual approach (I'm more 5 years at a time) but I was desperate for the certainty.  I know that none of us have a crystal ball but for me the interest rate difference between 5 and 10 years was so small I thought it was worth it.

The price for a 5year vs 10 year was pretty much the same for me. Seeing how pear shaped everything is going with the economy this year definitely made me rethink my own finances and want to protect myself longer term than normal. Congrats on your new fix... here's to the next 10 years...