Mumsnet Talk

We currently overpay mortgage by £200 as we have a interest only bit which is currently only £45 but we pay £250 as this is what it was before base rate dropped. The main 75% of our mortgage is repayment and the fixed rate just ended. Now I have 0.9% plus base which drops that part by another £290. So we would be paying £450 over per month. I have decided, instead, to use this to pay off a car loan early. But nervous about staying on tracker. I am risk averse and could only afford the £490 extra if rates went up and no more. Is this a good enough 'cushion' do you think. Or should i jump back on fixed rate BTW we'll never get this tracker rate again if i remortage so i use or lose. If it helps we have 65% LTV but are broke at end of each month due to childcare costs. These costs will dramatically reduce in 18mths.

Bank rates are not forecast to rise in the near future. If you want to save money you pay off the loan costing you the biggest interest first - assuming there are no penalties for doing so. Then again, paying lump sums off your mortgage capital can bring the term of the mortgage down dramatically. Is there a big balance outstanding on the loan?

About 8k on car loan with higher interest rate than mortgages as they currently stand.

You're not going to find a fixed rate that is close to 0.9% + base are you? And if you really are only squeezed for the next 18 months, you would be HUGELY risk averse if you opted to pay a premium of 1% or more just to fix.

We are on a similar tracker mortgage, and have looked at moving. The advice we got was to do everything possible to stay with our existing mortgage as we will never see a rate that low again!

I went through a repossession as a child in the 80's and we never got back on our feet as a family. My mum still lives in social housing as a pensioner. Hence all my adult life I have had this overwhelming fear of putting my children though the same. But having said that. Now I see it on paper I think I could come out of my comfort zone for next 18months and pay off unsecured loan at the same time would would be great.

I'm a bit confused - are you saying that if you go for this new deal, you would have £450 leftover once you've paid what you have to on both mortgages and the car loan also?

So the £450 is available to over-pay.

That could cushion an enormous rate-rise.

What happens with your overpayments too? Some banks will let you use these to allow payment-holidays later on.

As the interest rate is so low though, I'd recommend NOT overpaying on the mortgage. DEFINITLY overpay on the car loan and get rid of it asap.

Once you have done that, if interest rates are the same as they are now, put the money you have for overpayments in an ISA - it will earn more interest than the mortgage is charging you, and will be available to do whatever you want with at a later date (eg. if you neeed a new car you could avoid a car-loan).

If rates increase sharply then you can overpay a chunk to minimise the interest you are paying then, but in the mean time will be earning more money in the savings account.

Interest rates are currently forecast to stay low for another year or so. In my opinion you would be daft to fix now and waste money - that rate is a gift!!

I was in a similar position 2-3 years ago (just before rates plumetted) and went for a base-rate + 0.89% for life instead of a fixed-rate that would be have cost is the same at the time.
You can think of any gradual rate rises as just starting to balance out the difference between this bargain and what a fixed-rate would have been costing you over the cheaper period.

HTH