Which mortgage type?

Jacobs_Bunny

Hi,

I'm new to this forum and wondered if anyone could help me please? I currently have a fixed rate mortgage with the Abbey (4.69%), which is due to finish at the beginning of November. I was wondering if, due to the current high interest rate, it would be best for me to go for me to go for a rate matcher mortgage, such as that offered by the HSBC or a 'one account' type arrangement. I presently have just over 9 years and £103,000 left to go under my current mortgage.

Any help gratefully accepted:D
JB

JonnyBravo

Absolutely impossible to say without more information

eg
How much do you earn?
When do you want to pay off your mortgage?
How much can you afford a month?
Do you have savings?
Is it important to be able to move?
Do you want flexibility to take back overpayments?
Do you want a fixed rate?
Is your favourite colour red?
etc
etc

Jacobs_Bunny

>How much do you earn?
Personally £52,000, OH £20,000.

>When do you want to pay off your mortgage?
I want to pay off my mortgage asap (also ensuring I have a rainy day fund) and currently overpay by £328/month. Current mortgage repayment is just over £1200/month (including over payment).

>How much can you afford a month?
I can't really afford much more than I'm paying at present, amybe another £50/month. I made the decision this year to increase my pension contribution instead, as what ever I put in, my company matches.

>Do you have savings?
I have savings and usually make a 13th payment every year of at least one months repayment, but I'm not doing that this year, as I'm trying to save instead to pay off a car loan (currently about £10k outstanding on car loan).

>Is it important to be able to move?
Not anytime soon. I like my house and the area I live in.

>Do you want flexibility to take back overpayments?
No.

>Do you want a fixed rate?
Preferably yes.

>Is your favourite colour red?
Actually...yes

JonnyBravo

Jacobs_Bunny wrote: »

>How much do you earn?
Personally £52,000, OH £20,000.

Well you can pick pretty much anywhere with your earnings to loan ratio so long as your house is worth enough. What's your LTV? ie How much is the house worth?

Jacobs_Bunny wrote: »

>When do you want to pay off your mortgage?
I want to pay off my mortgage asap (also ensuring I have a rainy day fund) and currently overpay by £328/month. Current mortgage repayment is just over £1200/month (including over payment).

Can't make your end date (quote "just over 9 years") your 4.69% and your monthly payments add up... you mean you have 9 years left if you continue to overpay?

Jacobs_Bunny wrote: »

>How much can you afford a month?
I can't really afford much more than I'm paying at present, amybe another £50/month. I made the decision this year to increase my pension contribution instead, as what ever I put in, my company matches.

Fair enough

Jacobs_Bunny wrote: »

>Do you have savings?
I have savings and usually make a 13th payment every year of at least one months repayment, but I'm not doing that this year, as I'm trying to save instead to pay off a car loan (currently about £10k outstanding on car loan).

Do you have enough savings to make an offset worthwhile?

Jacobs_Bunny wrote: »

>Is it important to be able to move?
Not anytime soon. I like my house and the area I live in.

Anytime soon? So how long do you want a fix for? 5 years too long? 10 years?

Jacobs_Bunny wrote: »

>Is your favourite colour red?
Actually...yes

Jacobs_Bunny

>Well you can pick pretty much anywhere with your earnings to loan ratio so long as your house is worth enough. What's your LTV? ie How much is the house worth?

About £260k


>Do you have enough savings to make an offset worthwhile?

I'm not sure. I have about £3k so far. Is this enough? Sorry if I sound dim, but off-set mortagages weren't that big 5 years ago, so didn't consider it.


>Anytime soon? So how long do you want a fix for? 5 years too long? 10 years?

Two to five years will be fine. Just coming out of a 5 year deal at the moment.

iieee

I've got two points from the common-sense book of dealing with money that you might want to think about before your mortgage:

(1) You need to have about 3-6 months salary in savings that you can access fairly easily, just in case the worst happens and you needed to live off savings for a while.

(2) If the interest on the car loan is higher than your mortgage, you will save money by tackling that debt first.


After that, the thing I'd be wary of with 'rate matcher' mortgages is that they more than likely have high fees to offset the low interest rate - they're making their money somehow!!

JonnyBravo

Jacobs_Bunny wrote: »

>Do you have enough savings to make an offset worthwhile?

I'm not sure. I have about £3k so far. Is this enough? Sorry if I sound dim, but off-set mortagages weren't that big 5 years ago, so didn't consider it.

Hmmm.... not really enough to make it a "must have". Seems like a fixed rate it is. (If it is offset but still the best offer then it's bonus.)

Well, if you ask me, I'd start by doing some leg work around the main lenders ie going on their websites. It's fairly quick and easy to do.
It was easier to make a decision a few weeks ago to my mind as there were a couple of stand out lenders ie firstdirect and HSBC (same people really) but are they still best? Not so clear cut now and the fees will take a large chunk what with you "only" owing £103k.

(I'm no mortgage advisor though... it's simply that I was looking a few weeks ago and bagged 5.49 at fd for 10 years.)

Jacobs_Bunny

Thanks for all the input. I'll start harassing lenders in the next few weeks or so.
I'm not very good at doing things last minute for fear of making a mistake, hence me asking so far in advance.:D

toffeegirl

You need to apply for the HSBC one by June 30th..... and don't forget that you will have to pay an early redemption charge if you leave your current deal early.

(I am currently mortgage hunting too....)

StuartGMC

iieee wrote: »

I've got two points from the common-sense book of dealing with money that you might want to think about before your mortgage:

(1) You need to have about 3-6 months salary in savings that you can access fairly easily, just in case the worst happens and you needed to live off savings for a while.

(2) If the interest on the car loan is higher than your mortgage, you will save money by tackling that debt first.

I agree entirely with (1) and (2) - clear the expensive debt then turn to that at the lower rate.

I would assume your monthly net income is about £4000, so you should be looking at £12-24000 readily available for the 3-6month reserve. This will of course be some 11.65% to 23.30% of what you owe now on the mortgage. Now, this is equivalent to only being charged 88-77% of the rate, and this benefit will increase as the capital decreases, so even if the initial rate looks more, if you have some offset the "equivalent" rate can be much better.

If you also have savings for planned purchases like the annual holiday etc then these can offset until you need to pay for it. If you get clever and put your monthly spend entirely on the credit card then you can offset another £1-2k+ every month (just schedule to pay it in full about 5 days before due online so it is cleared on the due date).

The offset money remains available if you need it (ie rainy day fund and planned purchases) but you only pay interest on the difference between the saving and remaining capital, thus more of your monthly payment goes against capital (if you continue to pay it at the same rate).

Consider this offsetting because you are a higher rate tax payer, it is worth looking at the impact on the interest you'll save vs that you could generate from the same in savings (see the MSE article on offset http://www.moneysavingexpert.com/mortgages/mortgages-vs-savings). However you need to clear other debts first, so this may be best deferred to the point where car loan is cleared?

So you need to consider how quickly you could be debt free (no car loan) and then build your reserve cash. It may influence your decision now on mortgage and tie-in period for your next mortgage with a view to later moving to an offset. If you think you can clear debt and build some savings now you may want to move to offset straightaway i.e. curb spending a little, offset with your monthly spend and then use your over-payment amount to build the rainy day fund, whilst paying your normal repayment requirement.

The overpayment is there offsetting interest whilst you build up the reserve so it is still helping on the mortgage from an interest perspective but you can access it if required. Once the reserve is in place to a large degree, go back to overpaying and offsetting and watch the end date accelerate towards you because now you are paying much less interest each month.

I'll happily send you the spreadsheet I use, it may help you if not now, perhaps in future (I'll PM my details).
My own plan is http://forums.moneysavingexpert.com/showthread.html?t=944413)

Whatever your decision, good luck and keep us posted on progress to be mortgage-free.

Jacobs_Bunny

Thanks for the wonderful advice. I'll be trying my best to pay my loans off early :A
Sam