Remortgaging opportunity?

[KDave]

I bought the house in 2017, 20% deposit, 25 year mortgage with a 5 year fix with early repayment charges. To get access to the better rates I planned to overpay this mortgage to reach 40% LTV in time for the remortgaging process at the end of the 5 year fix, which is in 15 months time. Overpayments and house price increases has pushed the valuation well over 40% equity already and the option to remortgage at decent rates has opened up early. 

Barclays have a 7 year fix, 1.49%, 40% LTV required. Fixing on that product I avoid any interest rate rises along the way to 2028, which is the main reason for doing it. The cost of this mortgage is so low that even with the early repayment charges I will be a few thousand better off at the end of the fix, so it makes sense to move now. 

I would take out a 20 year mortgage fixed for 7 years, then either get it overpaid as much as possible or save/invest the difference. When we come out the other side of the fix mortgage rates can be 10%+ and it won't matter.  

The alternative is to wait 15 months and potentially save the ERC on the existing mortgage which would save some more money, so long as rates don't move higher in the next 15 months. If house prices keep moving higher perhaps I can get a better deal if I can reach 50 or 60% equity in that time, but personally I don't see any of that happening. I expect the base rate to be higher by year end I would be very surprised if it isn't given inflation numbers. I also have my suspicions as to whether this 7 year fix or those like it with such low rates will be available from the banks this time next year. Equity today may not be as high as equity next year, it could fall just as quickly. 

I think I have already decided but what do we reckon.

[Stu]

I’ve not spoken to a broker but checking on comparisons sites, I don’t think it makes much if any difference on rate if wanting to borrow 60% or less.

I’m in a similar position, probably have smaller loan but looking to break out of a 5 year deal remaining  (10 year initially) as rates are so low currently. I don’t see rates staying this low for. Much longer. Certainly not in next couple of years. I think it’s a reasonable hedge to lock in a great low, long term rate and take the calculated hit on ERC if it’s in your favour or circumstances dictates.

Something else I am considering which I thought I never would is to mortgage interest only also. I should have enough lump sum when accessing my SIPP to pay principle. In the meantime I get the tax relief uplift compounded and a few hundred more each month to add to SIPP. .

 

[KDave]

That is another good point, there are not many offers above 40% LTV. In the past I recall seeing some banks offering better deals for 50 and 60% LTV on long fixes but it was few and far between, today Barclays offer better rates at 55% LTV but only for 2 and 5 year fixes. In which case increasing LTV further is probably not going to help for what I want to do.

The ERC on my current mortgage is roughly a years worth of interest payments, which I can justify paying as I will be going from a 25 year to 20 year mortgage 15 months early. Effectively I am paying a years worth of interest in advance in order to cut a year off, so the money is gone either way I look at it, even if I wait 15 months I will not on paper be any better off.

Interest only mortgage makes absolute sense at these rates if investing the money, not hard to get above 1.49% return per year and then pay off the mortgage at the end of the fix, keep the rest. The bank of Englands target inflation rate is 2% a year, borrowing at 1.49% is basically free money no? I will be doing a repayment mortgage but I think I will stop overpayments and invest the difference, seems like the right balance of risk. Then if it goes badly investing wise I will still be safe from historical norm interest rates. The other issue with fixing now for 7 years, 2028 is towards the end of the cycle when things will be getting interesting, peak inflation, peak interest rates potentially, I could be coming out of the fix into high rates on what is left. Barclays 10 year fix at 1.99% might be a better idea but that .50% cheaper over 7 years is very tempting. Not sure how much longer these deals will be on the market.

[HawkHybrid]

3 hours ago, KDave said:

Barclays 10 year fix at 1.99% might be a better idea but that .50% cheaper over 7 years is very tempting. Not sure how much longer these deals will be on the market.

 

the maths should be

1.5% compounded over 7 years = 11%

then 4% compounded over the remaining 3 years and multiplied = 24.9%

(the above is assuming rates will hit their historic average of 4-6% or higher)

2% compounded over the same 10 years = 21.9%

 

so if rates hit 4% in 7 years time then you would be 3% better off with the 10 year fix.

both fixes will perform equally if rates are at 2.9% in years 8 to 10.

if you think rates will go above 2.9% in 7 years time then the 10 year fix will be less costly

than the 7 year fix.

 

HH

 

Edited May 13, 2021 by HawkHybrid

[KDave]

3 hours ago, HawkHybrid said:

 

the maths should be

1.5% compounded over 7 years = 11%

then 4% compounded over the remaining 3 years and multiplied = 24.9%

(the above is assuming rates will hit their historic average of 4-6% or higher)

2% compounded over the same 10 years = 21.9%

 

so if rates hit 4% in 7 years time then you would be 3% better off with the 10 year fix.

both fixes will perform equally if rates are at 2.9% in years 8 to 10.

if you think rates will go above 2.9% in 7 years time then the 10 year fix will be less costly

than the 7 year fix.

 

HH

 

Thanks for the comparison much easier to see the potentially huge differences when compared like that. Even though I am expecting higher than 4% rates I think 7 years is enough to accumulate what I need to pay off what is left outstanding. The interest saved over the term is fairly significant and I will add the difference in interest and overpayments to what I already invest. For interest rates to be at 4% in 2028 it means inflation is running well ahead of that, which means good things for metals, value stocks, etc. Best case I am hoping by fixing now, inflation will help pay off the mortgage like in the 1970's; so long as I can position in the right places, if I am completely wrong on this then interest rates are not going to be a problem at the other end because it didn't happen, in which case I should have options. Cheers  

[Stacktastic]

@MancunianStacker 

Is my mortgage advisor and very knowledgable. I highly recommend PMing him. 
I had an hour chat with him last year,
He has not charged me and is great as he knows the real economy
& is not some out of university financial muppet or a flash harry get rich quick prat. 

Im unfortunately fixed until next July, but I can see rates still low then 
I think I would choose the longest term at the lowest rate possible, ideally fixed for 15 years!!! 
I would break my terms as it will only cost me £2k in July, which long term is nothing if im on 2-3% for 15 years!!

I can seriously see interest rates getting to 15% within that time frame. 

Edited May 18, 2021 by Stacktastic

[Spence098]

3 minutes ago, Stacktastic said:

@MancunianStacker 

Is my mortgage advisor and very knowledgable. I highly recommend PMing him. 
I had an hour chat with him last year,
He has not charged me and is great as he knows the real economy
& is not some out of university financial muppet or a flash harry get rich quick prat. 

Im unfortunately fixed until next July, but I can see rates still low then 
I think I would choose the longest term at the lowest rate possible, ideally fixed for 15 years!!! 
I would break my terms as it will only cost me £2k in July, which long term is nothing if im on 2-3% for 15 years!!

I can seriously see interest rates getting to 15% within that time frame. 

Is it even possible to fix for that length of time ?

[Stacktastic]

18 minutes ago, Spence098 said:

Is it even possible to fix for that length of time ?

No I doubt it personally as I dont have my cash, but I am sure he has a mortgage in that term??

I have read that securing a 30 year mortgage ideally at a decent fixed rate for 10c years,
not overspending & investing there difference in somehting decent (ie a business venture, stocks) is a good plan??
If your interest is 3% and you invest all your cash in somehting safe (like a dividend stock) that on average generates 3% thats fabulous over 35 years! 

Interest only is fabulous now, I wished I had done that (although I am on 2.3% I think), but I think it could be messy going forward. 

i have a year left on my fixed mortgage & I dont think they are finished with us yet with regards to the lock downs, stimulus & free money.
Thats a lot more fear mongering, being locked in our houses & ideally higher property prices
as people will be wanting to move and they have saved more cash for deposits. 
But as @KDave has said the inflation figures are out, we are due a stock market crsash & civil unrest as well as a war or two. 
That is not a good thing for proptery prices & they are in a bubble ready to burst  90% sure. 

Im up at least 70k on my house since I bought it & want to use that cash to refinance.
Hoping it 100k by next year LOL. 

Hopefully I can refinance at the best rate possible July next year,
but I will pull there trigger anytime if I see any signs of problems. 

I can see housing prices halving easily over a decade. Thats a bold statement I know. 

Edited May 18, 2021 by Stacktastic

[MancunianStacker]

I have a feeling rates will stay reasonably low foe the next two years and then normalize and then go up further but it really is a crystal ball job.
 

Anything can happen in 1 year, Covid-19 priced that. What could happen next, a war with China? Middle East? Etc.

I believe there are 15 year mortgages available with a couple of lenders, maybe just the one and you need enough equity to access that product I.e there are no 15 year fixed rates at 95% loan to value (LTV).

in the states I believe there are 25 year fixed rates but I’m guessing the penalties to refinance on these are higher?? Maybe someone across the pond 🇺🇸 can verify that for us Brits? 

[KDave]

There will be a base rate rise before year end. How this will effect mortgage rates, probably not much. Will these deals be around then, who knows, as said it's a guessing game on the details, house prices probably won't come down for a while. As I said last year, house prices will likely not move much in nominal terms when things get going, but in real terms they will fall a lot. 

I have sorted my 7 year fix with Barclays, can't see it going wrong at 1.49 percent. No more overpayments now, if I can't get a better than sub 1 percent return from savings that would have been used to overpay, then I'm doing it wrong and deserve to be poorer for it. 

[27carrots]

7 hours ago, Stacktastic said:

I can seriously see interest rates getting to 15% within that time frame. 

Gold better go 10x before this happens or I'm gonna cry. 😭

Edited May 19, 2021 by 27carrots

[MancunianStacker]

20 hours ago, KDave said:

There will be a base rate rise before year end.

I agree with everything else but I just can’t see this.

They (Govt and Economy) need everyone spending like money is going out of fashion to make up for the last year of hell.

The BOE even check with retail banks if their systems could cope with negative rates. If they didn’t feel this was a possibility, why ask? The Govt would love a negative rate so they could tax less in the eyes of voters but have the same budget to spend. 🤔 

Predicting interest rates is pretty hard though, so if you don’t like risk, fixing for as long as possible could save you a lot of money if the tide turns.

I wish I could get a 25 year fixed rate for my residential. I’d jump at it even at around 4%. Knowing it could be 7-8% one day scares the living 💩 out of me. My day remembers 15% base rate in the 1980s.

[Stacktastic]

1 hour ago, MancunianStacker said:

My day remembers 15% base rate in the 1980s.

That explains why properties were so cheap. I now see how my ex neighbour bought his house for 15k, but probably paid 100k.  Maybe more. 
Oh hopefully in 10 years if this is the case I will be in a cash position to snap up a deal or two. I have my genius mortgage guru to help if not. 
Even a 50k (todays price) beach house at 20-50% of current rate would be a great long term investment. 
I really want a good plot of land that can be developed for housing, but can be a homestead. 
Or buy a nice house with nice land. Sell the house with a decent garden and live on the land. 

So many flipping things in my head its really annoying, but I see this as a degree this year. 
I have worked my socks off. at least 5 hours a day consistently on these things.  

Edited May 19, 2021 by Stacktastic

[KDave]

Looking at price inflation, CPI for April 1.5% up from 0.7% in March, commodity prices all up, some 2-4 bagged YoY, houses +10% and used car +30%; people are already spending. It takes a while for inflation in commodities to filter through but we are seeing some of that now as expected. The consumer will be hardest hit by this, less money to service debt and standard of living destruction. It will get worse as rates rise to follow inflation and make it look like CB's have it under control, but they are not in control. Inflation is out of the bag now, there is no catching it no matter what they do the cycle will just have to run its course. QE 2020 is not QE 2008.

Interesting point on negative rates, in a deflationary scenario it makes sense but when inflation is running hot it would add fuel to the fire, who knows perhaps they want to hyperinflate but I doubt it, not in their interest. More likely they will allow inflation to run and follow it up with rates, the FED said as much last year, people thought it was a bluff but its the only way out other than collapse scenario. Perhaps you are right and end of the year is too soon, keep an eye on CPI for May.

[MancunianStacker]

17 minutes ago, KDave said:

Looking at price inflation, CPI for April 1.5% up from 0.7% in March, commodity prices all up, some 2-4 bagged YoY, houses +10% and used car +30%; people are already spending. It takes a while for inflation in commodities to filter through but we are seeing some of that now as expected. The consumer will be hardest hit by this, less money to service debt and standard of living destruction. It will get worse as rates rise to follow inflation and make it look like CB's have it under control, but they are not in control. Inflation is out of the bag now, there is no catching it no matter what they do the cycle will just have to run its course. QE 2020 is not QE 2008.

Interesting point on negative rates, in a deflationary scenario it makes sense but when inflation is running hot it would add fuel to the fire, who knows perhaps they want to hyperinflate but I doubt it, not in their interest. More likely they will allow inflation to run and follow it up with rates, the FED said as much last year, people thought it was a bluff but its the only way out other than collapse scenario. Perhaps you are right and end of the year is too soon, keep an eye on CPI for May.

I’m still in the mind that another virus / strain could take debt 💸 higher in the coming year/s and Govt borrowing will go up more but like interest rates that’s a hard one to predict. Some country’s like India and most of Africa are well behind in this vaccine program   And even the EU are struggling. I feel more bad news is on the way, followed by more lockdowns around the world and more debt. All helps towards the great reset and a financial reset too. 🤷‍♂️ 

Sorry I’m very skeptical of it all. Keep stacking PMs, Crpto and Pokémon cards 😉 

[Stu]

23 hours ago, MancunianStacker said:

I agree with everything else but I just can’t see this.

They (Govt and Economy) need everyone spending like money is going out of fashion to make up for the last year of hell.

The BOE even check with retail banks if their systems could cope with negative rates. If they didn’t feel this was a possibility, why ask? The Govt would love a negative rate so they could tax less in the eyes of voters but have the same budget to spend. 🤔 

Predicting interest rates is pretty hard though, so if you don’t like risk, fixing for as long as possible could save you a lot of money if the tide turns.

I wish I could get a 25 year fixed rate for my residential. I’d jump at it even at around 4%. Knowing it could be 7-8% one day scares the living 💩 out of me. My day remembers 15% base rate in the 1980s.

https://help.habito.com/en/articles/5016566-habito-one-interest-rates
 

Decent long term rates that you can port with NO ERC! 

[MancunianStacker]

1 hour ago, Stu said:

https://help.habito.com/en/articles/5016566-habito-one-interest-rates
 

Decent long term rates that you can port with NO ERC! 

Interesting 🧐 

I wonder which lender is behind this

[Stu]

34 minutes ago, MancunianStacker said:

Interesting 🧐 

I wonder which lender is behind this

I don’t know. I think they only cover England and Wales so rules me out. Probably just as well as I would be tempted. Think this is repayment rates also and so am considering going interest only.

[MancunianStacker]

1 minute ago, Stu said:

I don’t know. I think they only cover England and Wales so rules me out. Probably just as well as I would be tempted. Think this is repayment rates also and so am considering going interest only.

They are a broker and a lender in their own right FCA Authorised (just found out).

I am tempted but I’m 8 years into a 10 year at 2.89% but now with over 50% equity I could fix for 25 years at 3.49% but that would cost me about £800 a year more. However as soon as rates start to rises I’ll probably switch to them.

Thanks for the info @StuIm a mortgage broker but Habito One is only Avila me to it’s own brokers/advisers with this own company 👍🏻 

[Stu]

44 minutes ago, MancunianStacker said:

They are a broker and a lender in their own right FCA Authorised (just found out).

I am tempted but I’m 8 years into a 10 year at 2.89% but now with over 50% equity I could fix for 25 years at 3.49% but that would cost me about £800 a year more. However as soon as rates start to rises I’ll probably switch to them.

Thanks for the info @StuIm a mortgage broker but Habito One is only Avila me to it’s own brokers/advisers with this own company 👍🏻 

No sweat, I’m 5 years into a 10 year but looking to b break out for an interest only. Probably looking for a 7 to 10 year deal. Also have around 50% equity. 

[Stacktastic]

10 hours ago, Stu said:

 but looking to b break out for an interest only.

I have considered doing this. 

My brain is not very goos with mortgages, but I assume that if I swap to interest only
& my house has gone up £70 since i bought it I can also add that to the deposit?
I think that would be 170k approx equity on a 370k house. Is that 30-40%??

I understand with interest only you can really save a lot of cash & invest it elsewhere. 
What happens lets say if I got a 10 year fixed at 3% and mortgage rates go to 10%?
At the end of that term what happens then??

Lets pretend the house halves in value (quite possible but unprobbale given recent history), I could buy it back i guess?
Would getting the longest term & ideally fixing for 10 years be better on repayment?
That way at least you will own the house. 

I need to get my head round all this & become proficient in how it all works as i am remortgaging next year. 
Hopefully by then i can get a 10 year fixed at -2% LOL. The bank can pay me for the privilege of owning such a nice house.
Im on 2.3% I think which was not bad for a 5 year, given I know something was going to happen.
i did not expect rates to go to zero though!! it will swing back I think. 
 

Edited May 21, 2021 by Stacktastic

[Stu]

28 minutes ago, Stacktastic said:

I have considered doing this. 

My brain is not very goos with mortgages, but I assume that if I swap to interest only
& my house has gone up £70 since i bought it I can also add that to the deposit?
I think that would be 170k approx equity on a 370k house. Is that 30-40%??

I understand with interest only you can really save a lot of cash & invest it elsewhere. 
What happens lets say if I got a 10 year fixed at 3% and mortgage rates go to 10%?
At the end of that term what happens then??

Lets pretend the house halves in value (quite possible but unprobbale given recent history), I could buy it back i guess?
Would getting the longest term & ideally fixing for 10 years be better on repayment?
That way at least you will own the house. 

I need to get my head round all this & become proficient in how it all works as i am remortgaging next year. 
Hopefully by then i can get a 10 year fixed at -2% LOL. The bank can pay me for the privilege of owning such a nice house.
Im on 2.3% I think which was not bad for a 5 year, given I know something was going to happen.
i did not expect rates to go to zero though!! it will swing back I think. 
 

I am far from an expert and learning as  I go. What I would say is that most of a repayment mortgage (25 year term) goes in interest in the first 15 years or so. 
Regardless of the type of mortgage, you have(interest or repay) after a 10 year fix you will have to again shop around for best deal at that time.  If BOE rate is 10% at that point, affix deal will obviously cost you more. 
 

Here is a good article.

https://monevator.com/why-im-not-scared-of-my-interest-only-mortgage/

[Stacktastic]

1 hour ago, Stu said:

I am far from an expert and learning as  I go. What I would say is that most of a repayment mortgage (25 year term) goes in interest in the first 15 years or so. 
Regardless of the type of mortgage, you have(interest or repay) after a 10 year fix you will have to again shop around for best deal at that time.  If BOE rate is 10% at that point, affix deal will obviously cost you more. 
 

Here is a good article.

https://monevator.com/why-im-not-scared-of-my-interest-only-mortgage/

Yes of course I did not think of that - of course if you remortgage you will only have to do it on 20-30% of the property assuming you started from scratch. 
That means the payments will be a lot less assuming interest rates have not gone up severely. 
I guess by then anyway you could have enough investments to buy it in cash anyway??
Like buy a property at the bottom - rent it until prices go back up and then sell it for a decent profit.  

Thanks for that its really brightened me up knowing I could get completely out of debt in 10 years. 

Edited May 21, 2021 by Stacktastic

[HawkHybrid]

@Stacktastic try to make it simple.

 

let's say your house cost 100k.(using % numbers to keep the maths simple)

you have 20k deposit. you get a mortgage for 100k-20k = 80k.

your loan to value(ltv) is 80k(loan) divided by 100k(value) = 80%

if your house value doubles your ltv becomes 80k(loan) divided by 200k(new value) = 40%

 

repayment generally comes under two forms

1. capital and interest repayment(you repay the loan as you go along)

2. interest only repayment.(you repay the loan in one lump sum at the end of the term)

 

6 hours ago, Stacktastic said:

I understand with interest only you can really save a lot of cash & invest it elsewhere. 
What happens lets say if I got a 10 year fixed at 3% and mortgage rates go to 10%?
At the end of that term what happens then??

in this case you have repaid 0% of the loan whilst under interest only. all of your mortgage payments

are for the 3% interest. at the end of the fixed term you still owe the lender whatever you owed

them at the beginning of the term. now that the fixed term has finished you you should still be on

interest only but the rate changes to whatever the going rate of interest is.

 

interest only works best if you can beat the rate of interest at the end of the term(presumable by

making/saving money somewhere else)

 

6 hours ago, Stacktastic said:

Lets pretend the house halves in value (quite possible but unprobbale given recent history), I could buy it back i guess?
Would getting the longest term & ideally fixing for 10 years be better on repayment?
That way at least you will own the house. 

I'm not too sure what you are saying here. if you already have a mortgage on a property then you

and the bank via the mortgage, already own the property.

 

theoretically if you can get a 10 year fixed rate(regardless of whether it's interest only or capital and interest)

at a rate of less than the historic average of 4-6%, it should be a decent enough deal going forward.

 

HH

Edited May 21, 2021 by HawkHybrid

[Roy]

I think people should crunch the numbers and see what their monthly payments would be if interest rates hit 5/6% and they don't have a fixed rate mortgage.