Dear reader,
Just popping in this morning before work to ask a bit of advice.
We are nearing the end of our rubbish fixed rate and want to change to a cheaper interest rate. Easy you would think?
We had the house revalued as we had made some improvements and we now have a LTV of 69%.
We were very pleased as we had only managed to put down 10% less then 2 years ago.
We have been offered two rates- 2.49% and 2.79% both to last 2 years.
Now, the 2.49% costs £999 and the 2.79% costs £200
I thought it was as easy as working out how much each one cost you to repay and that was it but each one gives a different end mortgage balance with the 2.49% being better. Sadly, as we are debt reducing elsewhere we haven't got the £999 to pay upfront. They said I could put it on the mortgage but I have always avoided this.
After hours of mind bending maths, I worked out that the best way was to add the £999 to the mortgage and then overpay the mortgage by the monthly difference between the two rates which was about £40 a month which we can afford to do.
I wonder if there is anyone out there in blog land that is able to give a free bit of advice or who is very good at maths?
The difference was about £400 a year, not much on the scale of things but I'd rather have £400 than give it away.
Please could you contact me with any advice?
Thanks
X
Sorry I can't help with this one, we haven't had a mortgage for years but my son has just changed his yesterday from a fixed rate to a normal one where they can overpay each month, he said they will save £120 per month on a 10 year mortgage, that will be used as overpayment. They are hoping to move this year as they need an extra bedroom,but every little paid off will help give them a larger deposit.
ReplyDeleteI wish you luck! It seems like a minefield out there, perhaps Frugal Queen may be able to help you if you drop her an email I'm sure she will do her best to help.
Karen xx
No advice from here, as reading that mathematical conundrum just made my head hurt!
ReplyDeleteHi Frugal.. We have just been through the same process. We have a similar LTV as you as we have been renovating ours too and have managed to add a bit of value in 2 years. We were advised to try and fix for as long as possible due to the uncertainty of the future interest rates and found a deal with Santander with no upfront cost and a rate of 2.99%
ReplyDeleteThere was another deal for a 2 year fix with Woolwich think again with no upfront cost but with £250 cash back!!
I hope this helps and hasn't confused you more!
Clare
Not such an expert any more, but would avoid putting the £999 on the mortgage as you will be paying interest on the £1k for every month of the mortgage (ie not just the 2 years). I would find out how much the 2.79% will cost each month, and see if you will still be able to overpay each month. Of course, then your dilema will be whether to reduce other debts or overpay the mortgage!! Hope you can work it out.
ReplyDeleteI agree with Alison on this one. Keeping the capital as low as possible. I would look in detail at the small print in regards to overpayments. Mortgage debt is an acceptable reality, be nice to reduce all borrowings but like many I expect you will have to choose between the two. I choose to pay off my mortgage for home security and am working on my personal debt. Juggling on 0% and making higher payments has enabled me to have a clear plan and progress. Over two years your nett saving would only be £199 adding £999 to your capital sum seem pretty steep for that pleasure and if the addition wasn't reduced you will be carrying that extra capital at your next rate review. Personally I would compare your personal debt interest rates and pay off the highest for the next two years if they are above 0% and incurring you interest higher than your mortgage. I know this contradicts what I did myself but my personal debt was less than £5k and only a 3rd of my mortgage payment. I have since throw everything at my debt which should clear by December this year. Sorry I can only give no more than an opinion but I'm no expert. There are lots of compound interest apps on line and also many articles about 'snowballing' but I'm pretty sure you are aware of this method. Good luck with your decision x
ReplyDelete