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    Some financial advice please - can't decide what to do

    We currently have a staff mortgage as my husband works in a Bank (and yes that should mean that we know what we're talking about and should therefore know what to do) and the rate is set at a minimum of 4% which is obviously what we're paying at the moment but it's not allowed to go any lower, if the bank of england rate goes any higher than 4% then it can rise but have never known it go much over 5%.

    However, as the bank of england rate is so low at the moment, quite a few staff have been moaning that its not a benefit anymore so they have now come up with an offer and we don't know which to go for. We can either stay on this mortgage or we can transfer to one that is always 1.25% above the bank of england rate so if they reduce it today to 0.5% we would only be paying 1.75%. However, we then run the risk on this mortgage that if they interest rates ever go back really high (we've still got 21yrs on the mortgage) then we could get stung compared to the 4% rate, we have 6 months to decide but after then we can't swop again.

    I just wondered what people out there thought, and I just want to point out that he doesn't work for one of the "dodgy" banks, he works for a profitable bank in case anyone was going to make any funny comments (not that they would of course!!). We did think of transferring to the new rate which would more than halve our monthly payments but keeping the payment the same and therefore paying a big chunk off while the rates are low, but my husband's fear is that the interest rate will shoot up quite high when we eventually get out of this recession and he wishes he had a crystal ball to see how far in the future that would be - don't we all.

    Any advice would therefore be appreciated just to see what other people would do really to help us make our decision.

    7 Comments

    Thats a tricky one. I think interest rates will go back up but will be 5-10 years before this causes a problem for you. Have you thought about if you did change, saving the money you save each month and then when/if the interest rates do raise you have a pot of money saved to cover this or infact pay of a large lump of the mortage.

    This way you are taking advantage of the current offer but saving for future hikes in the interest rate.

    Original Poster

    Trauts78;4556240

    Thats a tricky one. I think interest rates will go back up but will be … Thats a tricky one. I think interest rates will go back up but will be 5-10 years before this causes a problem for you. Have you thought about if you did change, saving the money you save each month and then when/if the interest rates do raise you have a pot of money saved to cover this or infact pay of a large lump of the mortage.This way you are taking advantage of the current offer but saving for future hikes in the interest rate.



    That's one way around it but I know I'd spend it which is why we thought of swopping over but keeping our payments the same so we'd then be paying double what we should. I think I'm more inclined to swop but my husband is thinking we should stay with the 4% so we don't have problems in the future. It's a tough one for sure, thanks for your reply I've left some rep.

    How much will it cost to transfer your mortgage, get a quote and see if its worth it as some still insist on a survey and legal fees?....there may be a penalty on the staff mortgage also.

    Well it's a risk either way.

    Over a 21 year period chances are that the rate is going to go quite a bit over 5% at some point when the economy does start to recover. The 1% rates might only be around for a year or two.

    Can you overpay? Working in a bank you should know that it doesn't take very much overpayment to reduce the total time of the mortgage by quite a lot. If you can overpay by enough to reduce the mortgage more quickly then it would probably pay to switch to the lower rate and use the extra 2% that you aren't paying in interest to bring the mortgage down more quickly.

    If you can reduce the total time by 3 or 4 years you might well not feel the effect of interest rising to 6% or 7% in a few years time. In 5 years time 7% of a smaller remaining mortgage might not be any more than 5% of the remaining mortgage that you have had with your current repayment scheme.

    The question comes down to whether or not you think interest rates might end up much higher than 5% and whether or not you are willing to take the risk. Your call.

    Supermod

    Rates wont reach "peak" for another 3-7 years.
    Take the lower option, put the rest in the bank and then when the rates go back up you will be able to afford it as you have savings or you could just remortgage dependant on what is around.
    Mortgages are a gamble.

    Original Poster

    Spod;4556283

    Well it's a risk either way. Over a 21 year period chances are that the … Well it's a risk either way. Over a 21 year period chances are that the rate is going to go quite a bit over 5% at some point when the economy does start to recover. The 1% rates might only be around for a year or two.Can you overpay? Working in a bank you should know that it doesn't take very much overpayment to reduce the total time of the mortgage by quite a lot. If you can overpay by enough to reduce the mortgage more quickly then it would probably pay to switch to the lower rate and use the extra 2% that you aren't paying in interest to bring the mortgage down more quickly. If you can reduce the total time by 3 or 4 years you might well not feel the effect of interest rising to 6% or 7% in a few years time. In 5 years time 7% of a smaller remaining mortgage might not be any more than 5% of the remaining mortgage that you have had with your current repayment scheme.The question comes down to whether or not you think interest rates might end up much higher than 5% and whether or not you are willing to take the risk. Your call.



    I know, that's our quandry. as I said above, we can overpay which is what we would do so would be paying the payment of a 4% mortgage instead of that on a 1.75% mortgage so would pay off more but how much depends on when the interest rates start going back up again. A really tough call, I think the Bank thought of this when they put it forward that it's not an easy decision to make but they have answered staff moans that they are paying more than most "normal" people out there for what's supposed to be a staff perk.

    wendyak;4556270

    How much will it cost to transfer your mortgage, get a quote and see if … How much will it cost to transfer your mortgage, get a quote and see if its worth it as some still insist on a survey and legal fees?....there may be a penalty on the staff mortgage also.



    No there's no fees to transfer it over as it's just going from one type of staff mortgage to another. If there were fees we wouldn't even be considering it!!

    The other thing to consider is how long you are going to stay in the house. If it's only 5 or 6 years you will have to refinance when you move anyway so worrying about what the interest rate will be after that is irrelevant.
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