[Harryg]

Getting into a Mortgage and want advice on best way of managing it.

1) Getting fixed mortgage for ten years ( Repayments higher than No 2)

2)Getting fixed mortgage for 5 Years ( Repayments lower than No 1)

I am allowed to pay extra on my monthly payments whichever I choose up to a certain amount, is it better to pay extra in payments or is it better to pay a lump sum once a year.

Any help from you money experts will be most appreciated.

[Broncho]

My advice would be find a decent FA.

[goodbyalfa]

It's all about risk and your opinion on risk.
Over the last 14 years we've always gone for the comfort of a 5 year fix rather than a 2 year , knowing we could comfortably afford it, and would be protected if the rates went up. On each occasion, the rates have actually gone down a little so we have lost out a little financially.
However, put me back in the same situation, I'd do the exact same thing again. I like the safety blanket. If you can get a good rate on a 10 year, I can see the attraction, however 5 years was the sweet spot for me when comparing available rate vs protection offered by the fix term.

[Armaan]

Originally Posted by goodbyalfa

It's all about risk and your opinion on risk.
Over the last 14 years we've always gone for the comfort of a 5 year fix rather than a 2 year , knowing we could comfortably afford it, and would be protected if the rates went up. On each occasion, the rates have actually gone down a little so we have lost out a little financially.
However, put me back in the same situation, I'd do the exact same thing again. I like the safety blanket. If you can get a good rate on a 10 year, I can see the attraction, however 5 years was the sweet spot for me when comparing available rate vs protection offered by the fix term.

+1. 10 year rates tend to be higher and you might see a decrease and be kicking yourself.

5 years is a decent term to see where you are and go from there.

Armaan

[ZedsRedBaby]

Originally Posted by Harryg

Getting into a Mortgage and want advice on best way of managing it.

1) Getting fixed mortgage for ten years ( Repayments higher than No 2)

2)Getting fixed mortgage for 5 Years ( Repayments lower than No 1)

I am allowed to pay extra on my monthly payments whichever I choose up to a certain amount, is it better to pay extra in payments or is it better to pay a lump sum once a year.

Any help from you money experts will be most appreciated.

Impossible to advise on 1 v 2 without a crystal ball. For me it would depend on how much lower the 5 year fix was.

As for overpaying, it depends on why you want to do it. Are you over-borrowing to leave yourself cash in the bank which you'll then pay off if you don't need it? Are you going for a long term to keep the payments down but intending to pay it off quicker? What else would you be doing with the money? Would it be sat in an easy access account earning close to zero interest or would it be invested longer term? If by "better" you mean which would reduce your total interest the most, then paying off as much as possible as quickly as possible would do that, but then why borrow so much in the first place?

There's no way of answering your questions without a lot more information.

I'd echo Broncho's advice and suggest a proper chat with an IFA.

[isleaiw1]

Originally Posted by Harryg

Getting into a Mortgage and want advice on best way of managing it.

1) Getting fixed mortgage for ten years ( Repayments higher than No 2)

2)Getting fixed mortgage for 5 Years ( Repayments lower than No 1)

I am allowed to pay extra on my monthly payments whichever I choose up to a certain amount, is it better to pay extra in payments or is it better to pay a lump sum once a year.

Any help from you money experts will be most appreciated.

I have gone variable for last 2 years. Why? Because fixed tend to have sizeable early settlement penalties and given our living arrangements, who knew when we might want to settle.

You could go variable, pay same amount as 5 year fix so overpaying, and then see where you are in 2 years. In early years of a mortgage you pay more interest so capital reduction is limited - early overpayment reduces capital sooner and has good long term impact.

What will happen to rates, who knows. But the fixed rates are best estimates of the industry with a risk margin built in so in theory, if they know their stuff, you should win by going variable rate.

As for when to overpay, subject to building up a decent savings nest egg, the sooner the better to maximise interest saving.

[Panchoa]

Can’t see the base rate going any lower unless we we went to 0%, so if you can get a decent 10 year rate I would be inclined to fix it in.....realistically they can only go one way now!!

[isleaiw1]

Originally Posted by Panchoa

Can’t see the base rate going any lower unless we we went to 0%, so if you can get a decent 10 year rate I would be inclined to fix it in.....realistically they can only go one way now!!

But the way they are expected to go is factored in to the fixed rate - and the longer you fix, the higher the premium you pay to cover the banks uncertainty...

[NotGotABimmer23]

What's the monthly payment differential between the 2 and is there any change you would want to sell within 5-10 years as the ERCs can be quite chunky.

Mortgage rates atm aren't actually that good, in fact they are no better now than they were when I took out my loan last year, even though base is 65bps lower.

[un1eash]

I bought my first house in 2011 and went 2 year fixed, then 2 years, 2 years and now 3 years at it wasn't much more.
Every time the advice was go 5+ years rates will only go up, but they didn't, they went down, my friends stuck on 4-5 years fixed were kicking them selves.
Rates pretty much cant go any lower though so I think a 5 year now would be a good idea as you can get 1.4-1.6% depending on LTV.

[Harryg]

Originally Posted by kylemacca01

What's the monthly payment differential between the 2 and is there any change you would want to sell within 5-10 years as the ERCs can be quite chunky.

Mortgage rates atm aren't actually that good, in fact they are no better now than they were when I took out my loan last year, even though base is 65bps lower.

This is obviously one of the drawbacks, getting the 10 fixed is a higher rate but what comes with it is the higher penalties on early repayment. The interest rates are low at the moment and I really cant see them getting lower but I am just testing the water before the decision is made. Some very good points regarding both scenarios.

On the third point about paying extra,I am a bit unsure as my take is that should I say pay an extra (x) amount off each year I am saving a considerable amount over the mortgage term. What interest is paid is minimal next to zero however should I pay an extra lump off I am in reality getting a return of what the rate is for the mortgage does this make sense?.

Also would it be better to pay this lump off annually or just add it to a monthly cost.

Thanks all for your contributions to this thread I like to hear other people's views.

[MashinBenzin]

There is also the consideration, in a low interest environment, of investing elsewhere rather than overpaying the mortgage. I have done both approaches in different years.

Equities are either reasonably priced right now, or standing somewhere near a cliff edge. Thank you Covid.

I would suggest that a mixed approach could be beneficial, depending on your risk appetite. And if you do invest then definitely a monthly drip, never a lump sum.

Are you loading on pension contributions? That's arguably the most effective, as it means free money, but of course it's locked in.

[Harryg]

Originally Posted by MashinBenzin

There is also the consideration, in a low interest environment, of investing elsewhere rather than overpaying the mortgage. I have done both approaches in different years.

Equities are either reasonably priced right now, or standing somewhere near a cliff edge. Thank you Covid.

I would suggest that a mixed approach could be beneficial, depending on your risk appetite. And if you do invest then definitely a monthly drip, never a lump sum.

Are you loading on pension contributions? That's arguably the most effective, as it means free money, but of course it's locked in.

I do have other investments some of which are locked in, so I would prefer to go the way of withdrawing extra outlays should my circumstances change.
I may be wrong but I believe anything earned with interest payments over the £1000 threshold is taxed at rate of the tax band that you pay so it can be a pretty big hit on any investment but once again I am not too sure about this its just that if it is lying around it will no doubt get used so I would rather put it to good use.I can see the benefit of paying extra off the mortgage as this will eventually reduce the timespan which will then reduce the amount of interest paid back. Should my circumstances change I am not tied into anything and just pay what is required but you do make some valid points and thanks for your views.

[NotGotABimmer23]

Originally Posted by Harryg

This is obviously one of the drawbacks, getting the 10 fixed is a higher rate but what comes with it is the higher penalties on early repayment. The interest rates are low at the moment and I really cant see them getting lower but I am just testing the water before the decision is made. Some very good points regarding both scenarios.

On the third point about paying extra,I am a bit unsure as my take is that should I say pay an extra (x) amount off each year I am saving a considerable amount over the mortgage term. What interest is paid is minimal next to zero however should I pay an extra lump off I am in reality getting a return of what the rate is for the mortgage does this make sense?.

Also would it be better to pay this lump off annually or just add it to a monthly cost.

Thanks all for your contributions to this thread I like to hear other people's views.

I would make regular overpayment rather than lump sum as you will save more on interest. For example 12 over payments of 1k each from Jan to Dec will save you more on interest than a 12k lump in Dec.

I would take a longer term and overpay rather than a shorter term and a higher normal payment, it gives you more flex and will make no difference in cost if you pay the same amount.

[un1eash]

Originally Posted by kylemacca01

I would take a longer term and overpay rather than a shorter term and a higher normal payment, it gives you more flex and will make no difference in cost if you pay the same amount.

This is what I've done this time, could of gone 10-15 years but went 25 years so I have control on how much I pay per month. I can overpay annually by upto 10% of the total amount outstanding.

[gangzoom]

10 years is a long time to fix, 5 year rates are below 1.5% so almost below inflation, that's what we're going for next.

We overpay 10% each year, usually in little bits every 2-3 months. The other thing to consider if you can afford repayments is to shorter the term, we are currently on a 20 year mortgage instead of 25 years, that combined with overpayments has dropped our LTV from 70% to under 50% in just over 3 years, which leaves us with loads of options going forwards.

There is something to be said about maximising you mortgage borrowing at the moment given the low interest rates, but only if you have something worth spending the money on (not a car ), otherwise your still taking on extra debt for no reason regardless how cheap borrowing is.

[pmgreenwood]

Originally Posted by Broncho

My advice would be find a decent FA.

as rare as hounds teeth

[pmgreenwood]

Originally Posted by Harryg

Getting into a Mortgage and want advice on best way of managing it.

1) Getting fixed mortgage for ten years ( Repayments higher than No 2)

2)Getting fixed mortgage for 5 Years ( Repayments lower than No 1)

I am allowed to pay extra on my monthly payments whichever I choose up to a certain amount, is it better to pay extra in payments or is it better to pay a lump sum once a year.

Any help from you money experts will be most appreciated.

The choice always a gamble but all the extra debt created by the pandemic must lead to higher interest rates at some stage. In the very short term, there is however the danger of negative interest rates to try to encourage spending.

How you pay any extra money depends on whether it is reflected in the interest charged immediately or at an annual contract anniversary

[aquazi]

Difficult for people online to advice this without knowing your background and your risk aversion. Lots of factors - steady income stream, LTV and term of mortgage etc.

Back in 2006 when i bought my first home mrtgage rates were 7% plus. When we moved in 2016 i got a 2 year fixed which at 2.2% when everyone was saying go 5 years... remortgaged twice since 2016 and each time it has gone down... more recently it was 1.69% with no product fee (sadly back in Jan before the world as we know it ended!)

If you go 10 years and the rates remain this low you will have overpaid... if the rates jump back to the 10%+ levels you will be quids in.

[NotGotABimmer23]

Originally Posted by aquazi

Difficult for people online to advice this without knowing your background and your risk aversion. Lots of factors - steady income stream, LTV and term of mortgage etc.

Back in 2006 when i bought my first home mrtgage rates were 7% plus. When we moved in 2016 i got a 2 year fixed which at 2.2% when everyone was saying go 5 years... remortgaged twice since 2016 and each time it has gone down... more recently it was 1.69% with no product fee (sadly back in Jan before the world as we know it ended!)

If you go 10 years and the rates remain this low you will have overpaid... if the rates jump back to the 10%+ levels you will be quids in.

Rates will certainly remain low for the foreseeable and the days of 5% + base rate are gone. I expect mortgage rates to come down some over the next couple of years. Pretty much every mortgage provider has banked the 65bps on the base rate cut as additional margin, when the market becomes more competitive there is room for mortgage prices to come down.

[Broncho]

Originally Posted by pmgreenwood

as rare as hounds teeth

Readily available then.

[doncarlyon]

What are the 2 rates?