I'm considering moving my mortgage, perhaps to First Direct as I bank with them. They do one of these 'offset' mortgages which has some attractive features, but none really that I would use. I don't have any savings (with them) that would reduce the amount of the loan, so basically it would just be a 'normal' mortgage at 5.75% for the full amount (51k).
Any thoughts about these type of mortgages that perhaps I hadn't considered (ie small print they don't push too much)?
Also, is it not necessarily 'wise' to move a mortgage after only 2 years (end of the discounted period on my current loan), as isn't the amount of capital paid off in the early years 'small' compared to what is paid off after the initial years are out the way?
If you take out a 25 year mortgage with a deal in the first 2 years, then after the 2 years are up you should go looking for a 23-year mortgage elsewhere. this way you continue to make inroads into the capital.
Personally I think in a few years time we will start hearing sob stories from people who've remortgaged every 2 years for the last 15 years and now owe more than they did at the beginning. If you keep swapping an unexpired term of 23 years for a new 25 year deal and roll the charges into the new advance, this is entirely feasible.
I've had a look at their website and it looks like a fixed rate deal, but I can't find out how long the fixed rate is for.
I guess it gives a degree of security, but it's a whole 1% over base, and costs 200 to set up, and they say there are penalties if you repay early. Not sure if they charge for a valuation.
I personally prefer offset mortgages that track the base rate and do not charge setup or redemption fees, but this would not suit someone who avoids risk, so go for fixed if you are after security.
What would the point of this move be? If its to get a lower rate, why not move to another discounted one. No point getting an offset mortgage unless you use it as such, since you shuld be able to get a lower rate than an offset (even if nota discounted rate one)
In your own words explain why you would like one of these offset mortgages if the attractive features they offer you would not use and you don't have any savings you would offset.
You are aware that offset mortgages generally have 0.50% higher interest rates than discounted mortgages. With such a low loan amount, consider the set up fees which include the cost of closing your existing mortgage which have been increasing recently, the solicitor fees and the new mortgage application and acceptance fees.
Also if you can afford it (and you do not choose an offset or flexible mortgage), consider changing the life of your mortgage while interest rates are low. As an example 51k over 25 years at 5% would mean repayments of
298 pm. However if you decided to knock 10 years off your mortgage and repay over 15 years then the repayments would only be 403 pm which is an extra 105 pm.
If you think you could have repayment problems if the mortgage rate increased then consider keeping the existing term and having a flexible mortgage where you can overpay the mortgage (by 100 a month maybe) and then take repayment holidays or reduced payments up to the amount overpaid if finances are tight or keep paying a repay the mortgage early.
I'm always a bit suspicious when I hear the term "discounted" mortgage. They often seem to have a "catch" like a high "booking fee" and often seem to revert to a crippling "standard variable rate" of about base+1.5% once the "deal period" has finished, so you end up on a continuous remortgage treadmill.
That doesn't answer the question. It seems to me that, on the facts, you should eliminate it from your options forthwith.
An OM is one in which you pay extra (in fees and higher interest rate) for the benefit of in effect earning an enhanced rate on your savings. If you're not going to make use of that benefit, it's not worth considering.
Having said that, your mini-cash ISA isn't paying you 5.9%, is it? So it could potentially be worth moving the funds after all. You still need to do your sums carefully. Chances are it's still not worth it.
Have you checked out the melton's 5.29% tracker which has no setup/valuation/redemption fees and has an offset share account? The only catch is that they only do sub 75% LTV except for local borrowers.
This generally isnt the case. The vast majority of discounts have no 'booking fee', and similarly the vast majority revert to the lenders Standard Variable rate at the end of the discount period.
What you describe sounds more like a 'tracker' mortgage which tracks BoE base rate, initially at a discount and at a margin over it thereafter.
The trouble is that a "standard variable rate" can be the best part of 2%
*over* base, which is where customers get "dumped" once the "deal" period ends, so they then have to have the hassle of having to remortgage, hence the "treadmill" description.
Agreed, but I think you are confusing Bank Base Rate & Mortgage Lenders' Standard Variable Rate. You dont expect permanent deals at Bank base Rate do you?
Not base rate, but perhaps around base rate +0.5%, which leaves some profit for the lender, without the extra admin of having to "churn" their customers.
Yes, as no one in their right mind would pay 6.75% unless they had a very poor credit history. The high SVR seems to rely on the "apathy factor" where people delay remortgaging without fully understanding how much being on the SVR is costing them. HSBC guarantee their SVR will never be more than 1% over base rate, and they are one of the biggest banks, so I'm not sure how other smaller banks seem to get away with having such a high SVR, unless they realise than many borrowers are guite gullible and will be drawn in by slick marketing.
Well I think +1% is a more reasonable rate to expect but it needs a very big player to be able to apply that across the board, and HSBC are one of the largest across the board, (but not in domestic mortgages though).
You are right that it might be better to have not so good discounts and lower SVRs.
HSBC;s mortgage book is just a fraction of their total lending and they can easily adopt a low SVR without it causing too much hassle and without if really effecting the gross margin achieved by their total loan book, and, of course HSBC are notorious for stitching you up with their insurances (which arent cheap). Also, HSBCs cost of funds is one of the lowest in the market because of their size.
The problem, especially for the smaller players, is that current deep discounts are funded by those paying the SVR and there is insufficient margin above their total cost of funds to be able to reduce the SVR across the board in one go. Also, their cost of funds is higher because a greater proportion is obtained 'over the counter' and B/Socs borrowing powers and credit ratings aren't as that available to Banks. Some small mutual's gross margin obtained over cost of funds is less than 1%.
So I think it will take some time before lower SVRs could filter through and that will mean more expensive 'introductory' deals in the meantime. The problem is that maintaining market share and volume is important and new business will still need to be bought in, and this will perpetuate the cheap discounts.
So, we agree in many respects but I stand by original assertion that the majority of discounts dont lead you into paying 'over the odds' in so far as you are not paying in excess of that lenders SVR. The only +ve margins you will see are when the loan is shown as being linked to Bank Base Rate.
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