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Should I sit tight on the base mortage rate?

by paul65 23 August 2010 |

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I have a £120000 mortgage with Nationwide which has 20 years left to go. My tracker expired in October 2009. Since then I have been paying their base mortgage rate of currently 2.5% (guaranteed not to be more than 2% above the Bank of England base mortgage rate). I am likely to stay with Nationwide. They are only offering fixed rates for existing customers in my position.
2 year fixed at 3.39% with a £995 fee
2 year fixed at 3.79% with no fee
3 year fixed at 4.09% with £995 fee
5 year fixed at 4.69% with £995 fee
I am overpaying on my mortgage every month to take advanateg of the low rate I am on. Should I still sit tight or is it time to take out a new deal - not necessarily with Nationwide.
Any advice greatly appreciated.

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SmudgeButt posted
Anyone will say that without a crystal ball it's impossible to know whether it's a good time to go to a fix rate or not.
I think you need to price is all out based on paying your standard payment vs with your overpayments. Throw in a few real wobbly scenarios - pay cut that makes your current monthly amount hard to meet, sudden emergency that wipes out your savings & maxes out your credit cards - whatever seems a realistic threat to your financial security. Remember that you are decreasing your LTV with each passing month so you may be in line for even better rates in the future.
Obvious comment might also be - do you have any other debts? If you do all excess money should go to paying those off as they are likely to be costing you a heck of a lot more than 2.5%!
Now personally I don't think that the BoE rate is going to increase much in the next few months and very unlikely to increase above 3% within the next year (which might make the 5 year fix look good).
Posted on 23 August 2010 | Love 0 loves Report
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Gubstar posted
stay put, your doing the correct thing by overpaying to bring down the LTV.
The only piece of advice would be to if possible put aside some money each money (possibly from the amount you are overpaying) into a regular savings plan that offers an interest rate higher than 2.5% (for regular savings accounts divide the rate offered by 2, to get the actual interest earned over a year).
This money can then be used to pay off a lump sum, should the interest rates increase to a rate higher than that being received on your savings.
Posted on 23 August 2010 | Love 0 loves Report
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MikeGG1 posted
Sorry, but I don't have a crystal ball, either. However, I wouldn't go for a 2 year fix, now. Perhaps not a 3 nyear one either.
It isn't so much for the cost of the interest for that period. It is more that I think rates will have gone up by then and a follow-on fix is likely to be expensive.
I would prefer to overpay now while rates are low and then there will be less capital when rates eventually rise. By then, you might be in a lower LTV bracket.
I would second Gubstar's idea the regular savings plan. You can get 4% for a 12 month Fixed rate monthly saver. such as with Principality. That is equivalent to 3.20% for a basic rate taxpayer or 2.60% for a higher rate taxpayer.
It enables you to offset the cost of interest while still retaining an emergency reserve, so is more flexible than putting every penny into repayments.
Mike
Posted on 23 August 2010 | Love 1 love Report

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