should I stop overpaying the mortgage and save?

Thanks all!

In response to the questions:

Why is the interest rate on the mortgage so high?It's a 10-year fix at 80% LTV, taken out in 2016. I don't think it is expensive, given the facts. Rates have come off a bit since then but the best comparable product today is 2.79%. The real question is whether a 10-year fix is a good idea (in particular when I took out at 80% LTV because I needed £100k to make the house habitable - so my LTV just 2 years later is closer to 60%). For me: yes. I know what it will cost to put a roof over our heads for a decade, and we can easily afford that amount if just one of us is in work. With both of us in work (which is the status quo) we should be able to repay about half of the principal by the time the 10-year period ends. Would I have been better off taking out a 2-year fix at 80% LTV and remortgaging to a 60% or 65% fix now? Yes, in hindsight. But had rates risen and/or house prices dropped, I may have found myself with a worse product. I paid a price for certainty and I don't regret it.

Can I mitigate high interest rate?Even if I wanted to remortgage, I couldn't. The penalty for doing so is currently £34k, and it will remain prohibitively expensive for the next 5 years at least.

Am I sure that the reg saver pays 5%?Yes: firstdirect, Nationwide and santander all pay 5% on regular savings accs. I already have a first direct reg saver and have had for years. I am applying for current accs with Nationwide and Santander for other reasons, so will also have access to theirs. I am also a member in the Principality, which has a 4% reg saver.


Good point on building up my savings for a rainy day. We do have 4-5 months of bills put aside. This is in my wife's name, in a savings account earning about 1% I expect. But saving the £700/month I am currently contributing to the mortgage will certainly bolster this.

I think I am going to give it a go. Even if I could only get 3% I would still do it. While there would be no arbitrage on the interest rate this year, it would be a one-way bet as regards future interest rate movements. I will have saved up about £9k by the end of the year and if rates have risen I can hopefully put that in a savings account paying at least 3% and repeat the process with reg savers. If I cannot get 3% on the funds when they come out of the regular saver, I will just use it to pay down the mortgage.

Thanks!

I did think of higher return investments, but the problem I have with it is that I expect that I will want to pay down as much of the mortgage as I can in 8 years when the fixed period expires, in order to get the best possible LTV when I come to remortgage. As I am super-conservative (hence a 10-year fix), I thought that the 8 year investment period was too short for that sort of investment. Basically I've decided that I would rather a guaranteed return at just above my mortgage interest cost, than I would a higher return on a product where my capital is at risk. And I am also expecting that at some point in the next 8 years, rates will rise so that my plan becomes more profitable. But that is just me - I hope yours works out OK!

fewcloudy wrote: »

If you'd do things differently if you had the chance again, then logically you must regret it. It's a coin toss, and on this occasion you lost. As has almost everyone else who bought a fixed term mortgage in the last 10 years, never mind a 10 year one. Long term fixes can cost a lot to buy in the first place, money which could have been put toward the mortgage, or meant borrowing less, saving you thousands over 25 years.
But then again, you're only 2 years in; by 2026 it may turn out you won your coin toss after all...



But you said if you could remortgage today your LTV is already at 60% so you are already at the best LTV. I doubt there will be many/any huge savings to be made in terms of rates for having a LTV below 60%. But good to strive for a smaller mortgage of course:)

Good point on "fixing" the LTV! Although that assumes house prices do not drop. And you are absolutely right - having a smaller mortgage is obviously a good thing.

As regards "would I do it differently" vs regretting it: I think I can reconcile the position. I play poker (badly) and sometimes you make the correct call at the time by folding a hand that could turn in to a monster winning hand had it been held until the death. Even after the event I don't regret folding: it was the right thing to do at the time, and as long as I keep doing that I will win over time. When I took out that mortgage my wife was pregnant and we were both changing jobs, so there could have been any number of problems when we came to remortgage, so locking in for long enough to materially reduce the principal amount was tempting. I will always favour fixing because I want to know that I can afford to make the payments - I value that certainty. I have had a redundancy protection policy for a decade too, and I have never even come close to being out of work. Knowing that now, I would obviously not have taken it out but it doesn't mean I don't value the peace of mind it has given me, and I won't be cancelling it!