£1.50 for every £1 borrowed...
Discussion
I am just about to fix in again for 2 years with our existing mortage provider. Our initial 2 year fixed period has come to an end.
They seem to have offered a deal that is very good, reducing our rate from 1.69% to 1.54% for the next 2 years. They have also taken 2 years off the remaining term, and we also taking 10k cash out for home improvements. This is going to cost us an extra 100 quid a month so all in all seems quite good.
However as I have been perusing the paperwork, the total amount repayable ( obviously that will change as the term progresses and we re fix and look at different products ) seems huge, much more than the amount borrowed, and it states that we are paying back 1.50 for every 1 borrowed. Unless I am having a moment that means I am paying 50% of each pound back? Its all repayment, and it gives an APRC of 3.4%. This is the first time I have taken on a new mortgage deal on my own without the assistance of a mortgage advisor which is maybe why these figures are not ones I am used to.
Another thing that puts the fear of god into me is the "if the interest rate rose to 10.99% your payment would increase to xxxxx". On that basis, if interest rates rose to 3% we wouldnt be able to afford the repaymens, or would certainly have a major struggle on our hands.10.99% is way above anything we could ever afford. In fact thew payment alone would equate to pretty much our full joint income.
Am I over thinking this?
They seem to have offered a deal that is very good, reducing our rate from 1.69% to 1.54% for the next 2 years. They have also taken 2 years off the remaining term, and we also taking 10k cash out for home improvements. This is going to cost us an extra 100 quid a month so all in all seems quite good.
However as I have been perusing the paperwork, the total amount repayable ( obviously that will change as the term progresses and we re fix and look at different products ) seems huge, much more than the amount borrowed, and it states that we are paying back 1.50 for every 1 borrowed. Unless I am having a moment that means I am paying 50% of each pound back? Its all repayment, and it gives an APRC of 3.4%. This is the first time I have taken on a new mortgage deal on my own without the assistance of a mortgage advisor which is maybe why these figures are not ones I am used to.
Another thing that puts the fear of god into me is the "if the interest rate rose to 10.99% your payment would increase to xxxxx". On that basis, if interest rates rose to 3% we wouldnt be able to afford the repaymens, or would certainly have a major struggle on our hands.10.99% is way above anything we could ever afford. In fact thew payment alone would equate to pretty much our full joint income.
Am I over thinking this?
I would also assume that it's calculated based on the first two years at the discount and the remainder at their svr.
But, with the world of short dates fixes the real cost tends to be somewhat obscured as it is a function of the size of your debt v the roll over fees and their frequency. The SVR is merely a sales tool that attempts to make the structured product look as cheap as possible.
Unless you have a very large mortgage then as a percentage the rollover fees every couple of years become a very significant cost. And a cost which the regulator does not force the vendor to produce a projection on.
If you want to get an alternate calculation of what you'll be paying then it's worth guesstimating all your product and valuation fees that you'll pay over the lifetime of your expected loan as much as any guesstimate based around current SVR.
But, with the world of short dates fixes the real cost tends to be somewhat obscured as it is a function of the size of your debt v the roll over fees and their frequency. The SVR is merely a sales tool that attempts to make the structured product look as cheap as possible.
Unless you have a very large mortgage then as a percentage the rollover fees every couple of years become a very significant cost. And a cost which the regulator does not force the vendor to produce a projection on.
If you want to get an alternate calculation of what you'll be paying then it's worth guesstimating all your product and valuation fees that you'll pay over the lifetime of your expected loan as much as any guesstimate based around current SVR.
I think you probably are overthinking a bit, although the figures should have been clear enough when you re-mortgaged before and when you took out your original mortgage so the compounding effect of the interest shouldn't have been such a surprise
However if this bit really is correct, then I would be concerned if I were in your shoes
Have you tried to do too much at once. You have cut the term and extended the loan, is this a step too far
To reduce the risk, perhaps a five year fix at around 2% might suit you better?
However if this bit really is correct, then I would be concerned if I were in your shoes
Dizeee said:
On that basis, if interest rates rose to 3% we wouldnt be able to afford the repaymens, or would certainly have a major struggle on our hands.
Whilst I have no real idea about how rates might change, an increase of 1.5% on the best available deal doesn't seem implausible over the next few yearsHave you tried to do too much at once. You have cut the term and extended the loan, is this a step too far
To reduce the risk, perhaps a five year fix at around 2% might suit you better?
I guess the lower interest rate offered on the 2 year fixed appeals, as I think a 5 year fixed with same bank ( Halifax ) sees the rate rise by around 2%.
They did say that the total amount repayable was based on the SVR switch which as has been mentioned, we would look to avoid anyway. This re mortgage has no product fee, another attraction to it.
Re the rate rises, we could manage a rise of a few percent, but wouldn't want to ideally. We are at the point in life where our outgoings are high with young kids, that said, that cost wil reduce in a few months as they are of schooling age now, so yes we could pay a few hundred more if we really had to but I don't relish the thought. But anything over 5% and I would say we are knackered. But I would presume a rate rise of 5% would knacker most of the population the way things are at the moment.
They did say that the total amount repayable was based on the SVR switch which as has been mentioned, we would look to avoid anyway. This re mortgage has no product fee, another attraction to it.
Re the rate rises, we could manage a rise of a few percent, but wouldn't want to ideally. We are at the point in life where our outgoings are high with young kids, that said, that cost wil reduce in a few months as they are of schooling age now, so yes we could pay a few hundred more if we really had to but I don't relish the thought. But anything over 5% and I would say we are knackered. But I would presume a rate rise of 5% would knacker most of the population the way things are at the moment.
If it's all that tight why are you adding an extra £10k to the loan? That bit doesn't make sense. We are obviously going to have higher interest rates over the lifetime of your loan so it seems like you are just making yourself a deadman walking and hoping for another State bailout for everyone?
Wacky Racer said:
Mortgage rates rose to 15% briefly around 1991, people today paying rates less than 3% don't know they are born...
Make hay while the sun shines....
I know, a fact my mother keeps telling me about and has done since 2004. But are they really likely to ride to that level again - if they did, surely around three quarters of the country would be homeless?Make hay while the sun shines....
Dizeee said:
the total amount repayable ( obviously that will change as the term progresses and we re fix and look at different products ) seems huge, much more than the amount borrowed, and it states that we are paying back 1.50 for every 1 borrowed.
That's only because you're borrowing for a lot of years. If you paid it back in a year the interest (in £) would be hardly anything. That's why people like to overpay their mortgages if they can.Dizeee said:
On that basis, if interest rates rose to 3% we wouldnt be able to afford the repaymens, or would certainly have a major struggle on our hands.
What are your actual amounts? It's a bit scary that you'd be in major difficulties at 3%.Dizeee said:
I know, a fact my mother keeps telling me about and has done since 2004. But are they really likely to ride to that level again - if they did, surely around three quarters of the country would be homeless?
Most of the country doesn't have a mortgage. 
Edited by Sheepshanks on Monday 17th July 10:07
Sheepshanks said:
Amounts
Broadly speaking we pay 1k a month at the moment, and have chosen to up that to around 1100 amonth with the extra cash, which we will use it pay off a car PCP which has reached the 3 year balloon plus install a new boiler, so worthwhile spending or at least we think.Edited by Sheepshanks on Monday 17th July 10:07
The fine print suggests if rates hit 11% we would be looking at £2800 a month - scary prospect and not one we could entertain - thats almost 3 x our current monthly payment.
Dizeee said:
Broadly speaking we pay 1k a month at the moment, and have chosen to up that to around 1100 amonth with the extra cash, which we will use it pay off a car PCP which has reached the 3 year balloon plus install a new boiler, so worthwhile spending or at least we think.
The fine print suggests if rates hit 11% we would be looking at £2800 a month - scary prospect and not one we could entertain - thats almost 3 x our current monthly payment.
Picking some random numbers of £230K and 20 years - that costs £1114 at 1.54% and £1275 at 3%. That comes out at nowhere near £2800 at 11% though.The fine print suggests if rates hit 11% we would be looking at £2800 a month - scary prospect and not one we could entertain - thats almost 3 x our current monthly payment.
Bigger mortgage amount and a longer term than yours. But it def quotes the monthly payment of 2800 if rates hit 10.99%.
The cash we are taking out is on two seperate loans of 5k each. So on paper there are 3 seperate parts to the proposed new mortgage - new mortgage, 5k loan and 5k loan. One of the loans is payable within 10 years, the other two are for the remaining new term of 26 years.
The cash we are taking out is on two seperate loans of 5k each. So on paper there are 3 seperate parts to the proposed new mortgage - new mortgage, 5k loan and 5k loan. One of the loans is payable within 10 years, the other two are for the remaining new term of 26 years.
wiggy001 said:
If money is that tight, I wouldn't be reducing the term. I would be overpaying to reduce the term which has the same net effect but allows you to stop overpaying if things get tight later on.
As above, don't shorten the term. Assuming there is provision to overpay without penalty, do that instead. Gives you some flexibility that way. Has the lender passed you on all the affordability checks yet (presume they will be doing so, due to shortening the term and extending the extra 10k)? I'm surprised that they think you can afford to repay at the SVR, when you think you'd struggle to afford it. They are pretty conservative when it comes to affordability these days.Bear in mind that if rates rise, the cheap fixes will disappear very quickly. What is the SVR they are offering (most are around the 4% mark at present)? Guess you're aware that the 'V' is for variable, so that means it'll rise in line with the base rate. What I'm saying is, that if interest rates rise within the next 2 years (even by 0.5%), you could end up stuck on their SVR at 5%. Yet you're convinced you'd be stretched at 3%?
But yes, paying back £1.50 per £1 is about right, due to the compounding of the interest. Sit down with excel and run it through a spreadsheet so you can understand and visualise it. Then play about with the figures adding in some overpayments early on. Anticipate interest rates going up - which they will at some point. They certainly won't get any lower.
I took the gamble on of a short (2yr) fix at the lowest possible rate. I could have fixed for longer, but I'd be paying a higher rate of interest. Thinking being that as long as I'm overpaying by at least the equivalent amount of interest, I'm no worse off. I've managed to overpay significantly more so far, but it might not be sustainable as I need to spend some money on the house (new doors etc). Just hoping that rates haven't risen before I can get another fix.
I've always worked to a principle that you pay back an extra £1 for every £1 you borrow but, as I've been thinking that since we bought our first house in 2002, I suppose it needed updating to £1.50!
As others have said, if I was that nervous about the SVR and not getting an affordable deal, I'd fix in for longer than 2 years. I didn't have much choice last time our fix came to an end as I'd been self-employed just about 6 months. My existing lender offered me a 2-year and a 4-year fix and I took the latter to be on the safe side.
That was the first time I'd come to an end of a fix and wasn't moving house so it was a new experience for me. It was so easy just phoning up my existing provider and getting a new deal from them - well, after all, they recently gave Top Cat a mortgage :-p - that I'll do that first next March and then see if there's anything else out there where the numbers stack up. So I'm not sure nearing the end of a fix is all that bad, tbh.
As others have said, if I was that nervous about the SVR and not getting an affordable deal, I'd fix in for longer than 2 years. I didn't have much choice last time our fix came to an end as I'd been self-employed just about 6 months. My existing lender offered me a 2-year and a 4-year fix and I took the latter to be on the safe side.
That was the first time I'd come to an end of a fix and wasn't moving house so it was a new experience for me. It was so easy just phoning up my existing provider and getting a new deal from them - well, after all, they recently gave Top Cat a mortgage :-p - that I'll do that first next March and then see if there's anything else out there where the numbers stack up. So I'm not sure nearing the end of a fix is all that bad, tbh.
I was chatting to a lad in work today about mortgages. I asked if he could afford the loan he's considering if rates hit 5%. He literally laughed and said that's never going to happen. The length of his mortgage will be 35 years. He's 24, and is of the belief that mortgage rates won't hit 5% anytime within the life of his mortgage.
Ballsy!
Ballsy!
He might be right. His rate might go straight from 4 to 6 and skip out 5% alltogether. 
Only the first phase of upward movement will be scheduled and controlled. Once it gets underway everyone's just along for the ride and rate changes cease to be preemptive or even reactionary but just plain chasing hard to get s
t under control before the country implodes and fully defaults.
Only the first phase of upward movement will be scheduled and controlled. Once it gets underway everyone's just along for the ride and rate changes cease to be preemptive or even reactionary but just plain chasing hard to get s
t under control before the country implodes and fully defaults. rufusgti said:
I was chatting to a lad in work today about mortgages. I asked if he could afford the loan he's considering if rates hit 5%. He literally laughed and said that's never going to happen. The length of his mortgage will be 35 years. He's 24, and is of the belief that mortgage rates won't hit 5% anytime within the life of his mortgage.
Ballsy!
Did you ask him why he thought this, and how many 30 year 5% caps he's shorted?Ballsy!
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