Mortgage options...

[CaptCaveMan]

Looking for a sounding board, our 5-year fixed expires in Q1, 2024.

Currently we have a 15-year term.  I'm making monthly overpayments which I increase annually, this is enough to offset the rate hikes.  We also have funds which could nearly half the outstanding...

Options:

1) Pay down lump sum and reduce term to 10 years, reducing our min monthly repayments.  Sign up to a 5-year fixed but keep overpayment plan at current rate so clear within ~5 years.

2) Same as above but sign up to a 10-year fixed (lower rate), cleared in under 5 years though need to confirm no penalties.

3) Switch to an offset keeping 15-year term and savings available (if needed) until enough to pay down and clear mortgage in ~7 years.

 

Option 2 is the quickest route to getting rid of the noose but I'm curious about option 3, funds remain available (if needed) until we clear down in one hit.

 

 

 

Before you say it, yes I could offload the stack also but prefer to keep this for the kids or a VERY rainy day fund...

[HonestMoneyGoldSilver]

If you have a lump sum to halve your mortgage that is amazing. The interest you save on the mortgage is equivalent to putting the lump sum in a savings/investment account and earning your mortgage rate compounded over the remaining term

To fix for 5 years or 10 years? It seems likely rates will be lower in 5 years' time, perhaps in the 2-3% range. In the near term the BoE is going to do what I predicted and hike rates to 6%+, which is going to create chaos

It's a tough one, it really is, as the government is going to issue helicopter money to help mortgagees (which will force the BoE to raise higher than they might have otherwise)

I'd probably take the 5-year fixed on the assumption that if the rates turned against me after the fixed-rate expires, well, at least most of the mortgage is paid off and the penalties won't be that high relative to the alternative 10-year fixed

Tough question though as all 3 options have their merits. One thing to point out about option 3 is that unless you are earning interest on those funds in an ISA or savings account, which will probably restrict your access to those funds in one way or another, then inflation is going to eat your capital. I'd tend towards paying off a chunk of the mortgage as it's a very safe option that generates a large return given how safe the option is. In a SHTF situation if you need to raise capital I guess you could always re-mortgage

[CaptCaveMan]

Cheers for the feedback @HonestMoneyGoldSilver

Yes, a great position to be in...

I can see BoE continuing above 6% and suspect we will be at 6% by end of year as only x2 1/4 point increases over the remaining months.  I'm not certain it will drop back to the 2-3% range within 5 years as I can see the 'current' crisis being a slow burn with global govn't interventions trying to delay/stave off.

With options 1 & 2, as long as there are no additional penalties in paying off early i.e. staying within the permitted 10% per annum of original loan, a 10-year fix could actually be a slightly better rate as we will still pay it off within 5 years with existing overpayments on top.

Funds are currently tied up but timed for release/flip at re-mortgage, we planned for this scenario just incase.  I'd be surprised if interest earned could match rates hence considering an offset although hadn't considered a mortgage increase if needed but to sell some assets... food for thought 👍

Edited July 7, 2023 by CaptCaveMan

[sixgun]

Sell up and rent. That's another option.

[CaptCaveMan]

1 minute ago, sixgun said:

Sell up and rent. That's another option.

Would love to bugger off and go roaming, issue is kids...

Edited July 7, 2023 by CaptCaveMan

[HonestMoneyGoldSilver]

1 hour ago, CaptCaveMan said:

Would love to bugger off and go roaming, issue is kids...

Those little buggers should be illegal. I have a 5 year old here running me ragged 😂

[sixgun]

Gilts are rising sharply - higher than when Liz Truss was briefly the PM and the bond market threw a fit causing pension funds almost to collapse.
Rising gilt rates mean rising mortgage rates. Rising mortgage rates mean falling property prices.
Follow the TSF advice - buy sovereings - i hear lots of chatter about a gold reset coming out of BRICS. Higher gold and lower house prices are a nice thing to behold when you are in a rented property sitting on piles of gold. Hence i say an option is to sell whilst the going is good and rent.

It's a gamble as with all such things. 

Edited July 7, 2023 by sixgun

[GoldDiggerDave]

It's a very difficult one mate,  @MancunianStacker may be the best person to speak with.   

The problem is always reality Vs human nature,  once rate rise its easy to dream and wish for the rates you remembered, it my go back down some economists are now saying the historic rates are a thing of the past.  

Its well worth looking at all the options, for me if I was to fix I would be looking to fix now for the total term, with the option or at least know the penalty for pulling out if the rates do drop to a point where its more cost effective to pay the penalty to jump onto the lower rate.   If the consensus is right and it's looking like a BOE base rate of 6.5% come March 2024 then thats got to make a mortgage 8.5-10% depending on whats out there.  

Its well worth using a few mortgage calculators and having calculations for fixing now for the term, fixing for 5 years and the rates continue to rise fix for 5 and the rates got back down to 2% for example.   

Over paying when rates continue  increase saves you far more then overpaying at a static 2% 

Good luck! 

[CaptCaveMan]

Cheers @GoldDiggerDave

What do I want to achieve?   My wife and I agree to clear the mortgage as soon as without selling everything plus the kitchen sink.

Why?  I consider myself very fortunate as I married my Mrs Robinson however as she's a little 'ahem' older than me, she wants to reduce her working hours which I whole heartedly support, she's earned it!

Personally, I don't believe rates will go down to the recent historic lows again, at least in our mortgage lifetimes...

I've been using calculators from a few sites and added the scenarios into Excel;

• One off, lump sum
• One off lump sum and monthly overpayments
• 10% max mortgage overpayment per annum
• 2-year, 3-year, 5-year and 10-year fixes against the above
• Offset mortgage

We've decided on a one off lump sum prior to accepting/taking on a fixed mortgage over the term.  New mortgage will be 2/3 of our existing term, still reducing the standard repayments compared to current.

I'm already making overpayments but will increase these, committing the same overall per month.  This reduces the remaining term by more than half so overall mortgage free in 1/3 the time.

[GoldDiggerDave]

46 minutes ago, CaptCaveMan said:

Cheers @GoldDiggerDave

What do I want to achieve?   My wife and I agree to clear the mortgage as soon as without selling everything plus the kitchen sink.

Why?  I consider myself very fortunate as I married my Mrs Robinson however as she's a little 'ahem' older than me, she wants to reduce her working hours which I whole heartedly support, she's earned it!

Personally, I don't believe rates will go down to the recent historic lows again, at least in our mortgage lifetimes...

I've been using calculators from a few sites and added the scenarios into Excel;

• One off, lump sum
• One off lump sum and monthly overpayments
• 10% max mortgage overpayment per annum
• 2-year, 3-year, 5-year and 10-year fixes against the above
• Offset mortgage

We've decided on a one off lump sum prior to accepting/taking on a fixed mortgage over the term.  New mortgage will be 2/3 of our existing term, still reducing the standard repayments compared to current.

I'm already making overpayments but will increase these, committing the same overall per month.  This reduces the remaining term by more than half so overall mortgage free in 1/3 the time.

Mate if you have options you are way ahead of those who don't, I can't see rates retuning to the historic lows for generations,  and can see mortgages normalising around 7-9% we could see a shorter term spike above this but who knows.    Suppose if you can plan and budget for higher and it doesn't keep on rising it will put you in a stronger position.  

I'm a big advocate of over paying as the savings are huge and you effetely win twice.  Save the interest off the top and you reduce the term time at the bottom.  10k off a normal sized mortgage  over 15 years will save IRO 7k off the top in interest  and take 10-12 months off the term time saving another 12k+ in some case way more if rates rise. 

 

It's a good feeling once you get into 15 years and less as what you owe on a repayment really starts to chip away at the principle. 

 

 

[JohnA1]

On 07/07/2023 at 10:28, CaptCaveMan said:

..Before you say it, yes I could offload the stack also but prefer to keep this for the kids or a VERY rainy day fund...

Offloading the stack would be my very last (and desperate) resort. Not before a significant revaluation event at least.

No matter what the BoE does, I see no way for inflation to stop increasing - let alone drop. They have printed ridiculous amounts of currency and they can't stop printing - this is a one-way street

Therefore any fixed-rate borrowing is bound to be repaid with inflated 'money'.  Borrower's dream.

I wouldn't touch variable rates with a barge-pole, they can raise them overnight to eye-watering heights.

But with 2-3% monthly inflation, fixed rates are attractive (to my eyes at least!)

 

Edited July 18, 2023 by JohnA1

[JohnA1]

15-odd years ago I made a spreadsheet with what I was paying every month that was pure interest.

Every card, every loan, mortgage, the lot.

It was a rude awakening, I had gradually settled into a situation where half of my outgoings were interest payments to various lenders. I was working for them, keeping the parasites alive.

I started obsessively overpaying starting from the highest interest and going downwards.

Seven years later this figure reached zero, and will stay there for the rest of my life.

Never again.

Edited July 18, 2023 by JohnA1

[CaptCaveMan]

We're in a VERY fortunate position @JohnA1

Totally agree with your comments and plan to join you in the not too distant future with virtually only the mortgage now to clear.

19 minutes ago, JohnA1 said:

I started obessively overpaying starting from the highest interest and going downwards.

Sounds like the Ramsey snowball method.  We decided on a clear down ~18 months ago as I done a spreadsheet for my stack (I blame TSF 100%) and began adding to it.  This included getting free money via bank switching which was used towards the plan as well as the odd Sov... it involved clearing a loan and credit agreements relating to dental work for the kids - all long gone now and expect our time frame will be similar to what yours was.

Next is the CC, even though we clear it each month.  I'll hopefully start a temp job in the evenings/weekends in the lead up to Xmas as I have the last couple of years.  It started by helping my lad get a job to earn some cash, I ended up joining him to save the travelling.  That means the CC is in the drawer by 2024, bullion, big expenses and emergencies only (payment protection), then the plan above re: mortgage.  It'll give us the breathing space to save/invest in us over the next few years leading up to retirement.

As you've said before, I don't know why this isn't taught from an early age... scrub that...

34 minutes ago, JohnA1 said:

It was a rude awakening, I had gradually settled into a situation where half of my outgoings were interest payments to various lenders. I was working for them, keeping the parasites alive.

[GoldDiggerDave]

52 minutes ago, JohnA1 said:

15-odd years ago I made a spreadsheet with what I was paying every month that was pure interest.

Every card, every loan, mortgage, the lot.

It was a rude awakening, I had gradually settled into a situation where half of my outgoings were interest payments to various lenders. I was working for them, keeping the parasites alive.

I started obsessively overpaying starting from the highest interest and going downwards.

Seven years later this figure reached zero, and will stay there for the rest of my life.

Never again.

You and me both mate, I was in a job that paid well but was sole crushing, so had a game plan to get out ASAP so chucked all the cash at the mortgage and the debt, that was cleared the mortgage by 38 and all debt by 39. Funny thing is while I was driving  down debt I did away with a few holidays and cars and once I paid the debt  off and had a huge monthly disposable income I did not want a flash  car or the holidays even though I could afford them. 

You soon realise most of the things you buy is just there to make you poor, designer clothes, cars, etc.   Even worse you use credit to buy S hit that deprecates to nothing as soon as you buy it.   This is not by chance it's by design. 

 

[CaptCaveMan]

35 minutes ago, GoldDiggerDave said:

You soon realise most of the things you buy is just there to make you poor, designer clothes, cars, etc.   Even worse you use credit to buy S hit that deprecates to nothing as soon as you buy it.   This is not by chance it's by design. 

This.  Unfortunately it's taken me a little longer to realize, attempting to make up for it now as well as teach the kids...

[MancunianStacker]

Hi 👋 

Personally I like option 3, the offset mortgage. Wish I was in the same situation 😂 

I like the ability to have cash set aside to take advantage of drop in other assets or the ability to buy a large amount of another asset eg gold (just before it goes to the 🌙 😉).

With an offset mortgage you get the same rate on your savings as you do on the mortgage, so that’s a nice way to overpay each month but still have access to the funds should an opportunity occur.

The offset rates are usually higher but it depends on what is more important to you, eg instant access to the savings or the better rate on a standard mortgage. You know you better than I do whatever you decide will be right for you. 👍🏻 

[AaaGee]

Has anyone got a link for a decent (laymans) mortgage calculator please?

Mine comes up for renewal in early 2026 so need to start getting my ducks in a row now.

What are the mortgage rates at, at the moment?Owe just over 70k at this time.

 

Thanks

 

[GoldDiggerDave]

I've had to explain the basics of how mortgages  work to a 38 year old first time buyer.   To say they are clues less is an understatement, not even moved in yet and they have wide eyed dreams of renovations when they can just barely afford the basics.   

This is truly an indictment to the eduction system.....Why don't they teach us about mortgages, pensions ie those life decisions we make that will effect us for a lifetime.   They will actively push the social and economic doctrine  that will program children to be passive compliant citizens and good tax paying  consumers.........The same system that educates you is the same system the steals from you 

If you have kids especially in high school its worth asking or finding out why this is not on the curriculum (it might be its certainly wasn't on mine) 

Educate your kids that debt is slavery, it's a hard sell as many think they are doing well if they have the latest phone on a £90 per month contact  have netflix and can eat a few takeaways a week.  

 

 

 

 

Edited July 19, 2023 by GoldDiggerDave

[GoldDiggerDave]

21 minutes ago, AaaGee said:

Has anyone got a link for a decent (laymans) mortgage calculator please?

Mine comes up for renewal in early 2026 so need to start getting my ducks in a row now.

What are the mortgage rates at, at the moment?Owe just over 70k at this time.

 

Thanks

 

There's a very basic one just in google, 

https://www.hsbc.co.uk/mortgages/repayment-calculator/

Also HSBC have one, they seam to be burying these now deeper within their web pages for some reason.   Who knows what 2026 will bring, Trump in Power, end of the Ukraine war, a UK CBDC,  UBI or mortgage relief payments.   No doubt we would have have at least 2 more events to keep the plebs under heal, banking collapse or something else to keep firing breaking news at us since 2008.   I'm not cynical honest 🤣 

[JohnA1]

14 hours ago, GoldDiggerDave said:

You soon realise most of the things you buy is just there to make you poor, designer clothes, cars, etc.   Even worse you use credit to buy S hit that deprecates to nothing as soon as you buy it.   This is not by chance it's by design. 

 

Ha ha, how true, as a petrolhead I can't even fathom how much I've spent through the years in cars/bikes, improving, customising, insuring etc rapidly-depreciating assets.  It beggars belief.

I've wised up now of course, my vehicles have almost zero depreciation and have paid for themselves years ago.  At least I haven't bought brand new in the past 40 years and neither on credit. Cash/BT.

[CaptCaveMan]

Quick update, we took the plunge with option 1) and paid £40k off the mortgage today, a bitter sweet moment!

In the past 13 months we've more than halved the mortgage but at the same time utilised a large part of savings to do so, stack remains untouched and will keep adding as it's another savings plan, although primarily aimed for the kids...

 

A step closer to being mortgage and debt free.

[GoldDiggerDave]

19 minutes ago, CaptCaveMan said:

Quick update, we took the plunge with option 1) and paid £40k off the mortgage today, a bitter sweet moment!

In the past 13 months we've more than halved the mortgage but at the same time utilised a large part of savings to do so, stack remains untouched and will keep adding as it's another savings plan, although primarily aimed for the kids...

 

A step closer to being mortgage and debt free.

Well done, it's not sexy and you don't see the reward today.    On that day you become mortgage  free say to the wife if we had not over paid we would be paying X amount per month for the next 9.5 years or something like that. It's only when you realise you have won twice, not paying the mortgage for years and the compounding interest you save can easily be £10,000's.

 

 

 

[CaptCaveMan]

24 minutes ago, GoldDiggerDave said:

Well done, it's not sexy and you don't see the reward today.

Yep... took some explaining to the Mrs though Dave 😆

We've knocked off 5 years already, fixed for another 5 at under 4% 👍  I give the thumbs up as I still see under 4% as cheap compared to historic rates...

With 10% overpayments per annum, we're aiming to clear it by the time it expires then switch what would have been repayments into savings/investments so will easily be saving £000s as the overall term will be reduced by 10 years before even considering anything we can put away in those years.

Still no better off (today) and there's still a noose but light and tunnel spring to mind for our future selves.

... now back to the hobbie, what's the latest Gold deals around here 😎

Edited February 9 by CaptCaveMan

[JohnA1]

1 hour ago, GoldDiggerDave said:

Well done, it's not sexy and you don't see the reward today.    ..

 

Well you can - just calculate the interest part of the payment you were making before and the ones you'll be making now.

Even if your payment amounts seem the same, you'll be now paying more off the capital and less in interest. So fewer payments left.

[GoldDiggerDave]

2 hours ago, CaptCaveMan said:

Yep... took some explaining to the Mrs though Dave 😆

We've knocked off 5 years already, fixed for another 5 at under 4% 👍  I give the thumbs up as I still see under 4% as cheap compared to historic rates...

With 10% overpayments per annum, we're aiming to clear it by the time it expires then switch what would have been repayments into savings/investments so will easily be saving £000s as the overall term will be reduced by 10 years before even considering anything we can put away in those years.

Still no better off (today) and there's still a noose but light and tunnel spring to mind for our future selves.

... now back to the hobbie, what's the latest Gold deals around here 😎

Mate theres nothing better than the first month the mortgage payment stops coming out……we kept on paying the mortgage into the joint account for years after, the rate you can save when not paying a mortgage is fantastic. 

not only that you get freedom knowing you don’t have that monkey on your back.