Remortgage - 3yr vs 5yr and deposits

Hello All

My 2yr fix at 1.20% is ending in few weeks.
I am so silly for not fixing that rate for much longer years and unfortunately I didnt have a great broker to advise me having a great deal and go for longer one!

anyway, i borrowed 126K+ for 28years term from Nationwide and now ended up £116.616 left to pay. Property is about 178K worth.

I am in dilemma what I shall do!
I have 50k worth of saving that i been saving anything I could over many years and now debating whether it is wise / better to lets say down pay a lump-sum or what?

looming at nationwide, if I bring the borrowed money down to 100k (downpayment of 16,616) it offers the following;

- 3 year at 5.20% for £565pm
- 5 year at 4.95% for 550pm

Now, what its better 3 or 5 year?
Also, it looks like no matter how much downpayment I am making, there is no discount or great improvement of the interest rate.

Am I missing something here?
Looking at it, the difference between putting down payment of 16.616 and NOT putting down any money is 

- 3 year at 5.48% for 676pm
- 5 year at 4.95% for 640pm

So its like 120quid monthly difference for 3 year and 90quid monthly difference for 5 year.

in my head I am like, multiplying 120 x 36 = 4,320 for 3 years and 90 x 60 = 5400 for 5 years. So, by making £16.616 downpayingment somehow is not adding value?

i am sure i am missing something here.
I not great with this and not sure what is best approach … maybe somebody can guide me on this.
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Comments

  • Your 'down payment' doesn't add value. It simply means you're borrowing less, so will pay less interest.  

    If you can earn a higher rate of interest on your savings, then you're better off not paying it off the mortgage.
  • MFWannabe
    MFWannabe Posts: 1,955
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    edited 6 November 2023 at 6:59AM
    Personally I’d leave my savings in a high interest saving account and take out one of the fixes; probably the 5 year and then make overpayments (make sure you can make overpayments); that will reduce your balance quicker and result in paying less interest 
    28/12/23: Debt total £12,900/13,192.13
  • Bucki
    Bucki Posts: 203
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    hello @MorningcoffeeIV and @MFWannabe

    indeed, I use DF Capital savings at 5.20% atm which seems to be over 200+ per month.

    Making no downpayment, will mean I need to somehow use the monthly income from saving account because the monthly repayment will then be 640 pm and as at moment I am paying 420pm .

    whether I keep the 50k saving for 5.20%
    Or downpay 16k hmmmm it’s tricky.

  • amnblog
    amnblog Posts: 12,388
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    Paying off £16,616 means you are not paying interest on those funds at 4.95% (5 year rate) or 5.20% (3 year rate).

    This saves you £68 to £72 a month.

    By paying off the lump sum you also seem to be reducing the 3 year rate available from 5.48% to 5.20% so this saves an additional 0.28% on the £100,000 reduced balance = £23 a month.

    You will of course lose whatever interest (after tax) you are receiving on the £16,616 where they are currently held.
    I am a Mortgage Broker

    You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • ACG
    ACG Posts: 23,622
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    I know I am biased here, I like to think I do a good job for my clients but we do not have a crystal ball. Nobody knew rates would go up or by so much in such a short space of time. I paid an ERC on my mortgage last year to secure a decent rate for 5 years, but it was only 12 months prior I did myself a 2 year fixed rate. 

    Anyway...
    The difference in rates at the various LTVs is very minimal at the moment, things are quiet and lenders have reduced their rates to probably very minimal profit margins to try and get the business in. 

    It is expected that rate will drop within the next 2 years, how much by is anyones guess. But with the figures you give, I think I would be inclined to go with the 3 year as I reckon rates will drop by more than 0.25% in the next 3 years - but again, no crystal ball, so it is just a guess on a personal level not professional. You should take into account other factors - plans on moving etc. 
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
  • Bucki
    Bucki Posts: 203
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    Hello @ACG

    good shout on moving!
    so what if after 3 years we plan to move to a bigger property, and we are on a 5 year plan for example?

    does it mean there is a cancellation fee or what is implication to that?

    at moment the 3 vs 5 year is about £15pm difference between when making 16k downpayment otherwise it 36pm differenxe if no downpayment.

    dilemma with me is - should i or shoukd i not make a downpayment? Its a tricky mind boggling thing for me cos one way I like the current saving interest i get round 250pm for my 57k savings.

    whereas downplaying 16k does seem impossible to regain them within next 3 years or 5 years with that monthly difference.

    i cant expect to know the % for future.
    i just need some advise what is advised on the payments and how to possibly lower the rate or make it things easier.

    on other hand, i suppose; i can not put anything down and pay £676 per month for 3 years and if wanted to can down pay the 10% of original loan per year. 

    I dont know i dont know
    too much info in my head and cant handle the pressure 
  • There isn't a simple answer to your question.

    You have £57k in your savings, £3000 interest a year - do you pay tax on it? (Over £1000 is subject to 20% tax if you're on 20% tax). That's also something to bear in mind as it lowers your interests to £2600 a year.

    Your options are:
    1) Not overpay anything and go with 5 years - 4.95% - £640 a month, while earning £250 from savings - £390 cost
    2) Not overpay anything and go with 3 years - 5.20% - £676 a month, while earning £250 from savings - £426 cost

    3) Overpay £16k and go with 
    5 years - 4.95% - £550 a month, while earning about £160 from savings - £390 cost
    4) Overpay £16k and go with 3 years - 5.20% - £565 a month, while earning about £160 from savings - £405 cost

    5) Overpay full £57k.. similar thing will happen here as your % of savings is similar to % of your mortgage.

    The only 2 factors are:
    a) You'll lose access to easy money if you ever needed it
    b) Rates can go down a lot, or can even go up.. nobody knows that for sure - so it's pure guess.

    Whatever decision you make it's more or less the same - it's really down to details like tax, mortgage fees etc. 

    Safest way - which I would do is to keep your savings as they are, lock in 5 years deal, and when your savings rate starts getting worse than 4.90% (your mortgage rate) then start using savings for overpayment within allowance to avoid ERC fee.
  • Bucki
    Bucki Posts: 203
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    Hello @Newbie_John

    Pay tax on savings?
    really? Wow! Was not aware and no have not paid any.

    Looking at the options you provided.
    Like you said, either paydown and pay lower rate per month or pay higher and use the savings interest to counter that.

    holding the money is indeed flexible and can leverage that for whatever else e.g if we want a bigger property and use that as downpayment?

    need to also understand when looking for 3 year term and want to move to bigger house e.g in two years time - what does it mean, is there a NO alternative or implications and fees involvement.

    nationwide is my lender btw.
  • fergie_
    fergie_ Posts: 155
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    By any chance was your original mortgage interest only? What is your vehicle to clear the mortgage?

    The other factor is that with the savings, you are likely to pay tax on the interest, unless they are in an isa. The question here is will you need the money in the short term? It may be more efficient, especially if savings rates drop, to pay off more of the mortgage upfront?
  • Bucki
    Bucki Posts: 203
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    edited 6 November 2023 at 1:03PM
    fergie_ said:
    By any chance was your original mortgage interest only? What is your vehicle to clear the mortgage?

    The other factor is that with the savings, you are likely to pay tax on the interest, unless they are in an isa. The question here is will you need the money in the short term? It may be more efficient, especially if savings rates drop, to pay off more of the mortgage upfront?

    No it was actual rate as standard.
    i now realise how low my interest rate was and why was i not advised to lock it for 5 years cos of such a good deal - dont know! 

    Anyway, cant change it now.
    need to adapt what it is out there.

    The savings is a build up over many many years, from work from student loan from whereever I had option to get paid on. I dont spend much in general, anyway.

    With the saving, i am wanting to get a car (a decent car) and have some as emergency lumpsum. 

    So, maybe its not as bas idea to bring it down to 100K of remaining balance and then within next 3 years pay as much as I can an annual basis or at the end.

    i guess, the only chance to pay more than 10% is at this point otherwise it is capped to 12K+ per year.

    wont be able to save 12k a year anyway.
    but guess anything to add will chip away long term?

    on other hand, i may consider getting a bigger house in next 3-5 years. So now, shall i hold of? Pay off? Whatever … just that is tricking my mind atm.

    In fact i am not in rush to pay whole mortgage off , i mean, still got time and dont need to rush. I think the sooner the less interest i pay in end bhut also trying to live the life lol

    Ultimately need to think what if i want a bigger property? Once in 3 or 5 year term, does it meant i cant move or have to pay higher fees etc
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