Remortgaging options

Lauraebrad

Hi All,
Just looking for advice / perspectives in relation to my options when my current product comes to an end in a few months.  Any thoughts welcome..... 

At that point mortgage will be about £40,000 remaining.  House value approx £215k so low LTV.
Single parent on part time income so prefer to remain with my current provider for ease (plus they're pretty competitive anyway). 

Technically at the end of the product the mortgage will have 10yrs 8 months to run.  I have a self-set intention to pay off within about 5 years.  I've been OPing (mix of actual OPs, savings, investments) for a while to assist in this.  So at the time of remortgage I'll have around £4k savings and £6.5k investments to use.

My intention is to pay off the 4K to reduce the sum owed down to £36k and ease the pressure of what will be inevitably a much higher interest rate than I'm currently on.  I will leave the investments where they are to continue to grow (and be added to) to deploy closer to the end of the mortgage.

So here's the question (based on current rates from my provider): 
A 2-yr fix @4.18% on £36k - £341 based on 11 years or £368 based on 10 years, or £666 for 5 years

Is there an advantage to changing to a shorter term in terms of interest saved?  At the £666p/mo I wouldn't be able to afford to invest for OPs in the future.  At £341/ mo I'd have a great deal more flexibility.  
Are there any unintended consequences of shortening the term at this point?  Or any specific benefits of keeping it long?

Thanks

El_Torro

It all depends on what happens with interest rates over the next 5 years. The problem is we don't know what interest rates will do, we can only act on assumptions and guesswork (much like the mortgage lenders do). 

I'm surprised you're being offered such a high interest rate on a 5 year deal compared to the 2 year deal. I'd be tempted to go with the 2 years, though that might not be the right option when we look back in 5 years time. 

Do you have any savings other than the £4k? It's a good idea to have an emergency fund that covers a few months worth of expenses. 3 to 6 months worth is the figure usually quoted. If you don't have this I wouldn't put any of the £4k into your mortgage. 

Regarding the £6.5k in investments, the stock market is currently very high, too high many people say. It might crash next year, or the year after, or at some currently undefined point in the future. Arguably now isn't a bad time to cash the investments in and put the money in the mortgage (or your emergency fund). This is guesswork again, we don't know if you will be missing out on considerable investment growth by doing this. 

Lauraebrad

Thanks @El_Torro sorry, I wasn't very clear.  The figures were all for a 2-yr fix but with different mortgage terms of 10,11 or 5 years for comparison. 
Yes, I have other savings to fall back on if needed - the £4k is just what is ringfenced as saved for OPs. 
Interesting on the investments - they do seem to be performing exceptionally well right now, and did occur to me that this probably won't be the case for too much longer.  If I cashed in now that could give quite a different approach.
Thanks for your thoughts

El_Torro

Ah, ok, makes more sense in that case. I probably wouldn't go for the 5 year mortgage term. As you say it reduces your flexibility. You can always overpay the mortgage as and when, assuming your lender allows you to make overpayments without early repayment charges.

Yorkie1

I believe that if you formally ask to change to a shorter time frame for the mortgage, that is likely to count as a new application which will require full affordability assessment. Far better to leave the term as it is, and overpay as you wish and can. It all comes out equal at the end.

Typhoon2000

If you have aim to have this paid off I would get a 5yr fix. Don’t change the term ( which can open a can worms and reduce your flexibility should your circumstances change for the worse) Just overpaythe maximum allowed every month and save any excess that you cannot pay without penalty, to pay as a lump sum and payoff your mortgage at the end of 5years.

MFWannabe

I’m having the same dilemma at the moment; slightly higher mortgage than yourself. I’m either going for a 2 year fix or tracker, just waiting until 6th November for the next Bank of England announcement so I can decide 
I don’t want to be tied into a five year fix 

If you change the term then it’s classed as a remortgage and therefore affordability checks are required; so keep the term the same and make overpayments up to the amount you can and save the rest to overpay at end of fixed term 

Lauraebrad

Thanks all.  To be honest I'd not really considered that changing the length would require a full affordability check etc - definitely better to let sleeping dogs lie!