Mortgage fix

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Comments

  • surrey_commuter
    surrey_commuter Posts: 18,866
    edited July 2023

    So lets assume things:

    Current mortgage of £250k cost £1k pm (12k per year)
    Rolls onto a 2 year fix at £2k pm (£24k per year, £48k over two years).

    Day 2 of new mortgage pay., say £20k.

    I am trying to have my cake and eat it here so I appreciate it may not work:

    1) Reduce principal to £230k so reduced interest over the term;
    2) Effectively paying off in advance a slug of the £48k, so now only £28k payable over the two years; and
    3) Given the principal is less from day 1, the interest is less, so under the new regime, the £48k is now, say £46k, so actually £26k payable over the two years

    Then do the same in year 2...and so on.

    I think your gain will be a lot lower than you think. You are paying down less than 10% of the outstanding so you only gain that off your interest each month. As you are then "underpaying" each month this gain will decrease each month.

    The other option would be to put the £20k in a savings acct which will not be as lucative but will be more flexible.

    or do 50/50

    probably more to be gained from getting the timing right and making sure you get the best deal

    * edited to add that I do not work in this field and so only type from the experience of going through this 3 months ago
  • TheBigBean
    TheBigBean Posts: 20,551
    If you bring forward £20k of repayments over one year at 6% and assume the repayments would otherwise have been equally spread, then you will save approximately 50% of 6% of £20k i.e. £600.

  • shirley_basso
    shirley_basso Posts: 6,195
    edited July 2023
    Fair.

    On the point of interest rates - just spoke to my broker (who had no idea what I was talking about when I tried to descibe the above) who said they are likely to come down in next 18m, so 2y fixed probably the best bet.

    Unsure if I beleive him.
  • surrey_commuter
    surrey_commuter Posts: 18,866

    Fair.

    On the point of interest rates - just spoke to my broker (who had no idea what I was talking about when I tried to descibe the above) who said they are likely to come down in next 18m, so 2y fixed probably the best bet.

    Unsure if I beleive him.

    Fixed mortgage rates are like a forward indicator of where they think base rate is going. Currently base rate is 5% and mortgage rates are nudging 7% and rising. That suggests the market thinks they will continue to rise. imo they will stop raising them way before inflation is where they want it to be so it will then plateau for a period likely measured in years rather than months. still imo it will fall in tiny symbolic stages.

    What may save your brokers forecast is that as a leading indicator the mortgage rate should start to fall before base rate.

    If I was in your shoes I would see it as a toss up but would probably go 2 years as I could not bear to fix at 5 years at such a high rate