Yet Another Re-Mortgage Scenario

lunagirl_2

Looking for some advice.

Current mortgage deal about to end. 1.29% fixed with Santander and I overpay £100 a month.

They have offered 4.61% fixed for 2 years. 2 years suits me as I am HOPEFUL the rates will come down and if not oh well.

I have 11 years 11 months left on repayment period. My LTV is 36% with around £60k left on mortgage. 

In anyone's opinion is there benefit in putting some cash down to lower the mortgage? I have savings I can use albeit they are sitting in accounts either equal to or slightly better than the mortgage rate. Is there any real benefit in reducing the mortgage capital other than to reduce what I'm paying interest on? Or should I continue to overpay a little each month.

Worried I'm missing something obvious here. 

grumpy_codger

lunagirl_2 said:

Worried I'm missing something obvious here. 

Tax on savings interest? This depends on your income. Are your savings sitting in a cash ISA?

As a side note, it hardly makes sense to overpay 1.29% mortgage.

Hoenir

What's the 5 year rate that you are being offered ? 

Are there any product fees to factor in? 

If interest rates fall as you believe they will. Then saving rates will correspondingly fall. While I'm all for speeding up repayment of a mortgage. There needs to be an accessible emergency savings pot available. Little point in overpaying if it were to result in borrowing at credit card rates. 

BikingBud

lunagirl_2 said:

Looking for some advice.

Current mortgage deal about to end. 1.29% fixed with Santander and I overpay £100 a month.

They have offered 4.61% fixed for 2 years. 2 years suits me as I am HOPEFUL the rates will come down and if not oh well.

I have 11 years 11 months left on repayment period. My LTV is 36% with around £60k left on mortgage. 

In anyone's opinion is there benefit in putting some cash down to lower the mortgage? I have savings I can use albeit they are sitting in accounts either equal to or slightly better than the mortgage rate. Is there any real benefit in reducing the mortgage capital other than to reduce what I'm paying interest on? Or should I continue to overpay a little each month.

Worried I'm missing something obvious here. 

The opportunity to gain the benefit was when you were paying 1.29% and savings rate ~5% were readily available but for you the split is now closing. If you exploited that great. What will Santander allow you pay off?

Do you anticipate that it will take ~12 years or do you aim to pay it off sooner?

Even if rates drop to 2.5% after your fixed deal ends it will cost ~£12k in interest.
If they stay at 4.61% then £18.2k but if you aim to pay off within 8 years that might come down to ~£12k
If they go up to 6% then it cost you £22.5k

What other rates and perhaps more importantly fees have been offered?

lunagirl_2

Thanks everyone.

No fees on this deal. 5yr deal wasn't much lower rate but I can phone and ask again.

I overpaid on lower rate as I am a higher rate tax payer with a maxed isa and hit the £500 interest limit. So overpaying along with premium bonds helped keep that under. ISA fixed two years at 5% and it about to mature later this month so need to find a new home.

Young family so don't want to put all my savings into the mortgage but can put a lump sum to reduce the capital if any benefit.

This isn't our 'forever' home so sadly not looking to be mortgage free anytime soon-bought this house as a graduate and haven't outgrown it yet but looming. 

penners324

You can put extra into your pension

BikingBud

lunagirl_2 said:

Thanks everyone.

No fees on this deal. 5yr deal wasn't much lower rate but I can phone and ask again.

I overpaid on lower rate as I am a higher rate tax payer with a maxed isa and hit the £500 interest limit. So overpaying along with premium bonds helped keep that under. ISA fixed two years at 5% and it about to mature later this month so need to find a new home.

Young family so don't want to put all my savings into the mortgage but can put a lump sum to reduce the capital if any benefit.

This isn't our 'forever' home so sadly not looking to be mortgage free anytime soon-bought this house as a graduate and haven't outgrown it yet but looming. 

So paying into ISA at 5% has ensured your money is working. And having access is good.

I think saying into a pension to reduce tax burden can work but with a young family don't reduce your take home too much.

If you are looking for a move at some point then tying into 5 yrs unless you can transfer that would appear to be a non starter.

But there are many variables not just the interest rate changes that will impact how much you pay going forward. I would set 5 years as your horizon, see what rate is on offer for 5 years, calculating costs, remaining debt and savings growth, for the scenarios you have in mind and then decide according to your priorities.

By keeping payments low and saving at better rates you may be able to build a larger bubble to enable a move with a lower mortgage going forward.