Changing mortgages - can I fix till end of term?

john_s_2

Two questions really. But a bit of background first. Apologies if there's too much info. I do tend to waffle!

I'm coming to the end of my five year fix with Skipton. I took out my mortgage with them in 1991, and fixed five years ago at 4.29% - I've never seen a better deal since so I feel like I've been paid back for fixing for three years (when I took it out) at 12.25%. This fix is ending now and the mortgage has just over eight years to run. My balance is about £38K and I'm hoping to reduce this further. It is interest-only, with an endowment with L&G - targeted at £51K and 4% projection at £34K (projection is a couple of years old now; probably due another).

I phoned Skipton today to discuss my options. I was hoping to fix till the end of term, and that they would waive their £599 fee as I was an existing (and loyal) customer. No such luck! I can only take either their 7 year or 10 year fix - extending the term in the latter scenario (the rate is the same for both terms). And they won't waive the fee. They did offer a fee-free 5.99% for five years.

The applicable fixed rate is now an uncompetitive 6.04% (it was 5.54% up to a few weeks ago - I'm guessing they shoved it up now all of their five year fixers are coming to an end).

I just want to fix the mortgage till the end of its term now. I realise interest rates could go down a bit, but I'm also aware they could double or triple (over the next eight years). I just want to fix and forget about it.

So I've been checking the FSA tables and am considering the following:

First Direct @ 5.29% for 10 years. £750 (approx) fees. Allows unlimited overpayments.

I figure that I can reduce the mortgage to a negligible sum when my endowment matures in eight years time - whatever the minimum balance is to avoid it being defined as paid off in full (which would otherwise attract a 2% of original sum charge - 2% of 38K=£760).

Or I could pay the Early Repayment Charge and include the £760 in my calculations as to which would be the cheaper option. (Even paying this charge would make it about 1K cheaper for the duration assuming I could pay Skipton 6.04% for the remainder.)

Any comments? Anything else I could consider? Ideally I'd like to just get a fix to the end of term but I couldn't see any fixes like this on the tables. Would a broker be able to offer me such a deal?

MarkyMarkD

Assuming you intend to stay in the property beyond 10 years, there's no harm in taking the 10 year fix from FD with limitless overpayments and paying the mortgage down to a low level once the endowment matures.

There's no way that any lender is going to waive a £599 product fee - you are living in cloud cuckoo land if you think they will. Lenders don't make anywhere near enough on mortgages to waive £599 in any circumstances. Past loyalty is worth nothing in this regard, to be honest.

They also won't have made any money on your 5 year mortgage at 4.29%, so I don't see why you think they owe you anything.

john_s_2

Thanks for that. Sorry, I assumed the fee was to cover the costs of setting up a new mortgage for a new customer (and then some). Also, they're not having to find the money to lend it to me - they did that 17 years ago. So things are just carrying on as they are. I'm sure I read somewhere that some lenders don't charge this for existing customers. Must have got my wires crossed somewhere.

On the flipside, if I leave then they get all their money back now - which seems to be quite important for lenders at the moment - so I can see why they would rather I go than continue.

As for owing me anything - I deleted a bit of my original post as I realised I'd gone on a bit. When I fixed it at 12.25% on taking it out, interest rates soon went down. I didn't take much notice of such things at the time until I sat down, with one year to go (two years into the fix), and realised that rates were generally 8%. I should have switched at that point - even paying the early exit fee would have probably saved me money. So that's why I reckon me and Skipton are even now :-)

PeteMc

First Direct @ 5.29% for 10 years. £750 (approx) fees. Allows unlimited overpayments

First Direct is currently 5.49% for a 10yr fix. The 5yr fix is 5.29%.

john_s_2

First Direct is currently 5.49% for a 10yr fix. The 5yr fix is 5.29%.

Oops! So it is. What am I like? ;-)

Still the best 10 year fix though.

I'm starting to think that I should consider fixing for five years, then three years (or vice versa). But I wanted to just fix for the term so I don't have to risk interest rates ballooning (and am happy to take the risk that they dive instead).

I suppose if I overpay as much as possible for five years then even if they have ballooned when that finishes, there won't be much outstanding on which I'll be charged interest. I'm acutely aware that a 38K mortgage probably sounds like chicken feed to a lot of people.

stoke_bishop

The best ten year fix I've found is the new Woolwich product at 5.29, 60% LTV.

john_s_2

The best ten year fix I've found is the new Woolwich product at 5.29, 60% LTV.

Thanks for that. That one isn't showing on the FSA tables yet; I guess it must be quite new. The FSA tables are quoting 5.59% for their ten year fixes.

Although I note that it allows overpayments of only 5% each year - I was looking for 10% or above (which is what I enjoy at the moment).

"10-year fixed rate: Early repayment charge: 6% of the balance repaid will apply if the mortgage is repaid in whole, part of transferred to another scheme until 31 July 2018. However, you can overpay up to 5% per year during the fixed rate period without incurring an early repayment charge."

http://www.personal.barclays.co.uk/BRC1/jsp/brccontrol?site=pfs&task=articleFWwealth&value=9631&target=_self

I still have a couple of months to play with (my five year fix runs out end of June) so it could be a completely different ball game by then. Interest rates look like they're only going down at the moment (although whether the actual lenders' rates will go down as well is another story). And from my limited understanding of these things, fixed rates tend to follow swap rates rather than the BoE rate. (Whatever swap rates are - I looked them up on Wikipedia and I wasn't really any the wiser ;-)

Decisions, decisions...

Trying_to_be_good

If you change some of the mortgage to capital + interest rather than interest only, you can manipulate the monthly repayments + overpayments to equal the 10% amount you would originally have overpaid with Skipton?

MarkyMarkD

John S

If you borrow money on a mortgage on a variable rate basis, the mortgage lender borrows the money itself, either from its savers or from the wholesale money markets.

If you borrow money on a mortgage on a fixed rate basis, the mortgage lender borrows the money as above. But then they also enter into an interest rate swap arrangement to fix the rate they will pay, to match the fixed rate you will pay.

This is why your point about "being even" with Skipton because you bought a fixed rate and rates then fell, is wrong. Skipton will have fixed the rate they were paying under an interest rate swap at the same time they lent the money to you at 12.25%. They won't have benefited at all from rates falling, because their cost of funds was fixed.

I could go on about this in great detail, but the other reason that mortgage lenders don't make as much money as people think (at the moment) is that their funding costs for wholesale funding are based on the interbank rate LIBOR, which is currently a lot higher than the bank base rate (and has been for a few years now, but the margin got significantly worse in the second half of 2007). This is why tracker rates have gone up quite a lot, in comparison to BBR, over the last year, whilst fixed rates are still relatively good value.

john_s_2

Skipton will have fixed the rate they were paying under an interest rate swap at the same time they lent the money to you at 12.25%. They won't have benefited at all from rates falling, because their cost of funds was fixed.

What a complicated web they weave! So I presume they WILL have benefited from rates rising since I fixed five years ago at 4.29%? Or did that not work in their favour either?

If you change some of the mortgage to capital + interest rather than interest only, you can manipulate the monthly repayments + overpayments to equal the 10% amount you would originally have overpaid with Skipton?

That's an interesting idea, cheers.

rachycakes

I'm not sure if this is any use (I'm new!) but Bradford and Bingley's 10yr fix has no ERC after 5 yrs ... think their rate was something like 5.69% ...