Preparing for mortgage rate rise

Mive

Hi All,

A very quick message, asking for your advice and hoping this might be useful also for other users. This is to discuss the best strategies to prepare for the mortgage rate rise once our lovely fixed-term offers are over. 

Background: House bought in 2016. Outstanding mortgage (as of today), ca. 70,000 (50% LTV of the original price; according to the most recent evaluation the value should be approx. 170k, thus less than 50% LTV). Lovely fixed rate at 1.09% until December 2024 (agreed redemption date July 2036). Based on my calculations, I will have more or less 60,000 outstanding by January 2025.

I have been overpaying quite regularly (but moderately), circa £ 1,500 per year (2,000 last year) for a total of ca. £ 8,000 so far (20% of the amount of the mortgage I paid back so far!). Usually, I set aside some money every month, to then overpay once per year - I have also other savings and investments, thus I am not putting my entire cashflow into these overpayments.

I am just wondering what would be the best strategy to mitigate - with overpayments - higher interest rates once they hit me in January 2025. I am with Nationwide, and I plan to make two overpayments of at least £2,000 each before my fix is over. For each overpayment I could decide to either a. cut the outstanding time of the mortgage, or b. to reduce the amount of money I pay every month.

So far I have reduced the length of my mortgage (a), cutting 2 years. I wonder if over the next two years it might make sense, instead, to reduce the amount of money I pay every month (b) in order to mitigate the monthly cost of my mortgage from 2025. If this is the case, over the next 17 months, I will set aside the difference in the monthly payments (before/after overpayment) in my overpayment pot. 

Obviously I will aim at overpaying more if possible, but I am grateful for your comments and advice, in particular if you have a preference in relation to the two options outlined above.  Thanks, M

simon_or

From a moneysaving angle, I'm struggling to see any reason for overpaying a low rate mortgage, it doesn't make any sense given recent and current savings rate available.

Pump all excess cash into the best savings rates you can access and when it comes to the end of your fix, use that cash to bring down your loan amount. At that point you can also look at lengthening your term to reduce the minimum monthly payment and then overpay when you have spare cash.

Newbie_John

Your fixed mortgage of 1% ends in December 2024.. 

I'd save as much as I can into 4%+ saving account/ISA, and then review the situation in a year time. Overpaying your mortgage now makes little sense.

RelievedSheff

To go down the savings route rather than the overpayment route you do need to have the will power not to dip into the savings though.

Sg28

Definitely dont overpay, earn money on your debt while you can!

Sarah1Mitty2

Newbie_John said:

Your fixed mortgage of 1% ends in December 2024.. 

I'd save as much as I can into 4%+ saving account/ISA, and then review the situation in a year time. Overpaying your mortgage now makes little sense.

Makes sense.