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Changing to fixed rate mortage every 3/5 years

Hello,

I am considering re-mortgaging. The maximum term I can have for a mortgage is now 19 years. I have a repayment(capital and interest) mortgage. Currently, I am on a default tracker at 1.25% above Bank of England base rate. My question: My mortgage is dropping about £2000 a year at the moment. I have been with the same provider for 6 years(fixed 3 years, variable 3 years) and presumably have paid off quite alot of the initial interest. If I now decide to re-mortgage (with a new provider) and get a fixed rate for 3 or 5 years, does this mean I will have to pay all the initial interest again and see my mortgage drop by ALOT LESS than £2000 a year over the next 3 years. Sorry if Im not explaining this very well, but when I discussed remortgaging with banks and building societys, they do not seem mention this. In other words, If I stay on a variable rate with my current provider, I will probably pay off around £7000 over the next 3 years, but If I get a fixed rate deal for 3 years, I could end up only paying off only £3000 over the next 3 years. Obviously, at the end of this 3 year period I may want to take out another 3 year fixed deal and end up with having to get a mortgage for only slightly less than the one I am applying for now,, BUT will only have 16 years to pay it off, and so on... So in 10 years time, if I keep taking advantage of fixed rate deals, I guess its possible I could end up with a mortgage, not much less than I have now, and only 9 years to pay it off. Any advice or information, would be appreciated. thanks,,,, Simon

Reply to
Simon Emm
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Why? Do you retire in 19 years? That's not necessarily a constraint. If you can still afford the payments on your pension, you can have a longer term.

Or is it because you are 6 years into a 25 year term? Well, again, that doesn't mean you can't extend it. However, it's not really a good idea to do so.

Of course, the longer the term, the lower will be you monthly payments, but the more you will pay all together. And especially if rates rise, you would be well advised to reduce your debt as fast as you can afford now, so you should go for as *short* a term as you can afford. You can always change it later.

No, you'll have paid off a lot of the original *capital*. Probably around 15% of it, in fact.

No, of course not.

Not unless you stretch the term or interest rates rise. Generally, all things being equal, the payoff rate always increases with time.

That sounds extremely unlikely. What interest rates were you quoted?

Decide what the maximum monthly sum is that you can afford to pay. Then find the deal with the lowest interest rate. You will need to gamble on whether to go for variable with discount, or fixed. Then ask the nice adviser to calculate the term which goes with the interest rate, the amount still owing, and the payments you can afford.

Suppose you owe about £64k and the rate is 5.25% and you have 19 years left to go. Your monthly payments will be about £450.

Am I roughly in the right ballpark? You've given enough information for me to estimate these values.

Now, if you stay on the same rate, but can afford to pay £600 a month, you would be paying your debt off nearly 7 years earlier. Although you'd be paying £150pm more (or £1800 a year more), you'd be paying £600 for about 148 months (£88800) instead of £450 for 228 months (£102600), so you'd actually be paying about £14k less all told.

Reply to
Ronald Raygun

Looking at the rates most of the fixed rates looks very unnatractive to me. You can get discounted rates that are 1.25-1.75 lower (with no ties beyond the discounted period). It is a gamble ... but I'd be surprised at rate increases of more than 1.5% in two years so a two year discount with no tie-in looks attractive.

Having said that ... I'm still looking ...

Thom

Reply to
Thom

Thank you both for your help. Its made my decision a lot easier. Its hard to imagine interest rates going up more than 1.5% in 2 years so the variable type deals do look quite good over 2 years. However, with the way things are at the moment for me, I will probably go for a fixed rate. In some ways fixed rates seem a little bit of a con, but what I am considering is a 5 year, fixed, flexible mortgage. My wifes name is not on the mortgage, but will be able to contribute £100 each month on top of my payment. This as you say maybe the only way that I am going to be able to get my mortgage down to a respectilbe level before Im 55. Yes, I will be 65 in 19 years time.... dread the thought.!!! Thanks again Simon

Reply to
Simon Emm

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