How to prepare for the end of a fixed rate mortgage

[turbotoaster]

For the number crunchers of mighty PH, how would you approach this.

First Time Buyer last summer, at 37 years old.

Bought house for £157,000
Term: 14yrs
5yr fixed at 1.24%
Deposit £40,000
Paying £765 per month
Remaining balance at end of 5yrs would be circa £78,000
LTV I expect to be be 40% based on todays zoopla valuation £195,000 (assuming to the potential ups/downs coming to be same amount in 4yrs time)

Current monthly im comfortable with.
2 young children
Take home £2k per month for me, I pay the mortgage and childcare(£300), wife pays the bills
Company car with fuel card so not subjected to fuel costs.


So im 1year into my 5 year deal.

I have seen the interest rate rising and so saw the expected mortgage rates if I was the take out the same mortgage today.

This got me thinking, since most of the money im paying to the bank is going against the capital, should I overpay? maybe bring it up to £850 a month, this would be something I can afford to do and would hopefully lower my LTV in 4years time reducing the potential for much higher rates(im expecting to be higher no matter what)

I can overpay 10% per year with no penalty

Ive heard some people will put money into a savings account then pay that into the mortgage at the end of the 5yrs when they are looking for the best deal, the issue I think with that is unless the interest your earning on is dramatically higher than the mortgage your loosing out(as it takes time to build up a large amount in there)

Im not interested in investments, or playing the stock market.

I just want the mortgage paid off as quick as possible and as cost effectively as I can, I would like to go part time when I reach 50.

Hope that provides enough info, but happy to answer any questions

[kiethton]

If you've got spare cash there is no harm in paying down the balance, although I'd be tempted to keep it in cash to give you more flexibility in the event something unexpected happens in the next 4 years. You can still lump it to lower upon remortgage regardless.

[Mr Whippy]

There isn’t much you can or should do except pay down as fast as you can if paying off asap is your goal.

However if saving rates go up sufficiently vs the mortgage interest costs to make it better to save a lump sum to pay at fixed term end, then things change.


Also sensible advice above about saving a decent rainy day fund given the prevailing economic conditions.

[Alex Z]

Once you get below a certain point, the LTV makes no difference. It’s around 60% from memory.

[turbotoaster]

Alex Z said:

Once you get below a certain point, the LTV makes no difference. It’s around 60% from memory.

ive just been playing with that to see what would happen on a comparison site and your right, went from 40% to as low as 15% and made no difference to the interest rate.

The comparisons says I can either pay the £850 now and £750 on the next 5yrs or £750 now and £850 on the next 5yrs.

So I think what others have said is to simply put a bit of money into my savings account incase anything happens in the next 4yrs and if nothing major crops up use that to pay a small chunk off the mortgage.

When you reach that point do you pay the money to the old provider and then transfer the remaining balance to the new provider?

[Stevemr]

You are in a great position well done. .
You are currently paying 1.24% and will be for next 5 years.
You can currently get about 1.5% in an instant access savings account.
So you are slightly better off saving the money than paying down the mortgage... and it’s very likely in the next 4 years interest rates will go higher. So you will be even better off.
This approach also builds up a nest egg, just in case you need it.
When you remortgage you can pay it to existing lender before new mortgage.

[craigjm]

Speak to Sarnie on here. He will give you the best advice

[anonymous-user]

once you give the money to the mortgage bank, its a tad more difficult to get it back compared to doing a bank transfer out of a C/A.

[gotoPzero]

I would not overpay at that interest rate, you would be saving next to nothing.

I would suggest saving into the best savings account you can find if you wont do S&S ISA.

Do you have an emergency fund and how is your pension?

[gazza5]

Currently some fixed rate 1 year savings accounts are over 2%. This obviously earns you more money than repaying that money off the mortgage.

My personal situation is a lot different, but with that house price I appreciate you aren't living in the south east (I have been trying to get away for years but missus won't move). I don't want to work till 65.

I am doing the following:

Saving £100 a month minimum into a easy access savings account, my best save was £225 one month, once I get to £500 / £600 - I fix that money with hargreaves lansdown as part of the active saver platform. Admittedly you could get a better rate going direct to banks, but this allows me to have one log in, get reminders from one place when products are nearing the end.

Currently Charter bank are good on Hargreaves Lansdown, I just fixed my last £500 at 2.25% for 1 year. You can do 6 months which is what I have been doing previously due to the interest rates going up / due to go up, but this time did 1 year, when they expire I then look and see where to put it again. You could do a 3 year which is currently around the 3% mark, but I think (again my opinion) we will see rates long term above that in terms of savings.

I know HL (hargreaves lansdown) get a bit of stick on here, but I have found this works for me, and thats the thing with finances, no one size fits all, we all have different situations etc.

[BikeBikeBIke]

Definately overpay, but leave enough in savings to deal with your boiler blowing up or whatever.

It's a no-brainer.

[ukwill]

Pay the money into an ISA. The interest on the capital over the term will most likely beat the mortgage rate. You will also have a pot of money that, if st hits the fan, you have readily available. At the end of the term you can, should you wish, pay off a lump sum before obtaining a new mortgage.