To be terrified about mortgage

[melodypondisasuperhero]

We finally managed to get our first mortgage last year and now this is happening. Our rate is 3.09% which runs out in August, currently the follow-on rate is 5% but I imagine this will go up several times before the end of the fix. We could manage 6%, probably just about 8%, but any higher than that and I really don’t know.

AIBU to be terrified? Or am I missing something?

Mortgage lenders must be part of the "anti-growth coalition"

@GloriousGlory you do come over as pretty sanctimonious. So what if @ComebackQueen has a bad credit mortgage? None of us has an unblemished financial record. I sure don't. I have a lot of empathy for people like her having to pay high rates in the midst of a cost of living crisis. It must be terribly worrying and a real shock after years of low inflation and low rates.

Excellent link.

Thanks for providing a source for high street lenders pushing deals to c6% because according to some, that’s not really happening.

That mini budget has a lot to answer for!

But what would I know? I’m financially irresponsible.

Thanks Dilly.

I am sure she got a nice kick out of reminding me I am financially irresponsible for trying to help my mother out.

I am not asking anyone to pay my mortgage, my husband and I do that ourselves.

Had the husband not been made redundant which then led to a job on less income and my job situation post Mat Leave being precarious, it wouldn’t be so worrisome.

I can only try my best and learn from my mistakes.

I have never personally missed a payment in my life and my only mistake was showing good faith to my mother especially after my father died from cancer she needed me to lean on much more financially.

I think the point the PP was trying to make, is that you are being charged 8% not becuase of the BOE decisions directly, but due to the lenders perception of you being a higher risk, due to your historical financial decisions. Therefore, you shoulder a portion of the blame for your rate.
I think.

Thanks to this thread, I realize I have misunderstood the 10% overpayment - I thought it meant that if I was paying £650 a month, I could only overpay by a maximum of £65. I've only now realized that it means that I can overpay by up to 10% of the remaining balance, eg. £10k this year if the balance is £100k.

Not trying to be tone-deaf to talk about over-paying, just lamenting my lack of financial savvy that means I haven't made the best arrangements for the last few years.

Mortgages are often misunderstood.

One of the easiest things you can do to save on your mortgage is to fix the repayment amount, not just the interest rate. If you just pay the amount asked for, you pay less per month each year as the interest is recalculated on the outstanding balance. But if you pay the same amount every month every year you gradually build-up an overpayment (that gets bigger every year) and it can take years (and tens of thousands of pounds) off your mortgage. It can be the equivalent of taking out a 28 year mortgage (to manage the initial repayments) but paying off in less than 25 years.

Thanks Dog, will try to get my head around it!

If I remember rightly, when we bought our current house the mortgage repayment was just under £550/month so we rounded up the standing order. We didn't change that standing order amount until last year (14 years on) when the building society told us that we'd exceeded the permitted repayment amount unless we changed it. Every time the fixed rate deal came up, we also looked to see if there was any surplus in the rainy day fund that could be used to pay off a bit more.

The more you can pay off earlier, the better. Albert Einstein called compound interest the most powerful force in the world. It's what makes mortgages so expensive. The first few years you're barely paying off the interest on the interest.

Yes, people with higher rates than most caused by their prior conduct cannot really blame banks for increasing rates or the Government. My fix before Covid is at 1.44% which seems very good now, but plenty of people (a) have bad credit records or very low equity in the house so had much higher rates even in 2019/20 and (b) were not able to fix at that stage. It is certainly difficult when rates rise partiuclarly if wages do not rise at the same rate. It will be interesting to see which rises fastest - rents or the interest element within a repayment mortgages. (The increase of course for most repayment mortgage customers is only in the interest part of their monthly payment, not the whole payment which makes things a bit better).

I'm not sure that's true. My mortgage has always quoted a fixed repayment amount for the entire duration. Obviously that changes and gets recalculated whenever anything changes (like lump sum overpayments and interest rate changes).

So not a repayment that reduces each month/yr. That's why in the early part of the mortgage your payments are predominantly covering the interest, and later in the mortgage that same monthly amount is reducing the balance more.

Obviously the interest is compound, so small rate increases make a huge difference over the lifetime of the mortgage. And the more you overpay, and the earlier you over pay it, the biggest the saving long term. It's a bit like pensions in reverse - the earlier you start and the more you pay in earlier, the bigger the advantage in the long term, due to the same compounding effect.

In regards to overpayment allowances, they're usually calculated annually, not on a monthly or daily basis. Typically, at the start of a 12 month period the amount is set for that year based on the mortgage balance at the start of it. You'd have to check the details or your mortgage to find out when that 12 month period runs from/to.

Mine was 30th September, so I managed to use up all of last years overpayment allowance just before the end of the year, and now it's reset for the next 12 months. In theory, I could pay off all my 10% allowance for this next year right now, or I could do it in equal monthly amounts, or I could wait until 29th September 2023 and do it all in one go then.

At the moment, it's possible to get savings rates that are outpaying mortgage interest (if you've got an existing fix at a good rate). E.g. my mortgage rate is 2.4% for another 15 months, but Barclays have just launched a savings account that's paying 5.1% interest. So for now, I'm better off (only by a £100 or so) putting the money into savings than overpaying the mortgage.

I'm not sure that's true. My mortgage has always quoted a fixed repayment amount for the entire duration. Obviously that changes and gets recalculated whenever anything changes (like lump sum overpayments and interest rate changes).
Check your annual mortgage statements.

Some say 10% of the original loan amount (not the amount you have reduced it to by the beginning of that year).

I'll check the documents, but my overpayments are going to be well under 10% of both the original amount and the current amount. No real risk of exceeding either, alas.

"High street bank bosses will tell the chancellor, Kwasi Kwarteng, that they have growing concerns over the state of the UK’s mortgage market when they gather at Number 11 Downing Street on Thursday.
The meeting – which is expected to be attended by chief executives, including Alison Rose of NatWest, Charlie Nunn of Lloyds Banking Group, Ian Stuart at HSBC UK, Mike Regnier at Santander and Robin Bulloch at TSB – comes amid mounting fears about the potential fallout from rapidly rising mortgage rates."

https://www.theguardian.com/business/2022/oct/06/uk-banks-to-raise-mortgage-market-fears-in-kwarteng-meeting?CMP=fbgu&utmmmedium=Social&utmsource=Facebook&fbclid=IwAR11q6zvkGA7QsHnCj4wEItR0E0Lt6naRJQuBKSOZhyS3f7XVSBaKltjsqU#Echobox=1665048893

alt is right above. Whenever I have repaid in recently times the lender's terms have been you can repay 10% over the course of a year of the amount then outstanding. So eg I paid one sum in a December and another the month later in January both within the 10% no penalty limit.

I have also repaid some early in a mortgage (mmy current one) over the 10% so paid the 5% penalty because the interest I would have paid over the 5 year fix period would have been more or about the same as paying the 5% penalty now.

In other words if you wanted to repay £100k and were paying 2% mortgage but there is a 5% penalty as you are paying over the 10% allowed in a fixed period but yo have 4 years to go before the fix is over, if you repay the £100k now the penalty is £5000. However you have saved 2% in the next 4 year = 8% = £8000 roughly so even taking the hit of the penalty at 5% now for that person would be cheaper than paying interest on the £100k over the next 4 years. However the closer you get to the end of the fixed period the less it would become worthwhile to make repayments over the 10% a year allowed amount which is penalty free.

Nice issues for rich people of course as most people can barely make the monthly payments never mind have money to repay over the 10% a year you usually can repay without the 5% penalty.

Did you read the entire exchange.

i clarified it was 8pct due to past issue.

She then wades in to say financially irresponsible and learned from parents, I conceded.

if you read the repeated posts made you will clearly see the vindictive nature, trying to insinuate I was lying about a friends high street lender upping a rate to 8% and also for a fixed c3pct rate because apparently they were much lower. Then another posted came in and provided a link of Lloyds upping to 6%z

Did I ever deny I had a less than clean record which actually wasn’t due to my own missed payments rather that because of my mother getting into issues and post my fathers death was relying upon me helping her out.

She then brought up an unrelated thread to continue her vindictiveness and then only went mute when two other people low key clock her.

She was looking for a fight, she got nothing but dust.

Sorry should read upping friends rate to 6pct whilst my rate went to 8 so I said wasn’t too dissimilar.

i only came on the thread to say it was worrisome.

Where did you get that rate please?

😂

I'm so confused!

We over pay a very small amount each month (£70 or 80).

Is this worth it or not?

It’s always worth it most definitely providing you have no other debt that’s costing you interest and you have three months mortgage payments in another account just in case.

YY to thinking about other debt, also having access to emergency money. Plus whether your pension arrangements are on track (due to tax relief the gain should be higher) and whether you anticipate any large purchases that you might need to borrow for - depending on your mortgage rate, there might not be any point overpaying your low rate mortgage now then taking out higher rate finance in the next few years for home improvements, car etc.

Compare the rate on your mortgage or savings. Some people are paying around 1% if they fixed in the last couple of years. You can easily get a better rate on savings and send the overpayment to your mortgage later when your fixed rate ends and you (likely) remortgage.

If you can't beat the rate, and haven't got a better need for the money, overpay, but check the terms on your mortgage, if you're in a fix, it's likely you can't overpay more than 10% of the balance each year (and different lenders have different definitions of 'year' ie calendar or between anniversaries of your product).

It depends. Is your mortgage interest rate lower or higher than the highest available savings interest rate you could access with that money?

It’s always worth it most definitely providing

It isn’t always worth it. If you can make more money with the spare money than the mortgage is costing you, it doesn’t make sense to do so.

I could have paid our mortgage off years ago but didn’t.