Mortgage rate dilemma—help!

[Linguaphile]

I need help making a decision! DH works for a bank and all employees have received a letter offering a new (better) rate on mortgages for bank employees. Good in theory, but there are conditions and I cannot work out if it is better to stay as we are or accept the new rate.

The new rate would maintain all of our existing loan structure and terms, with the following changes: 1) we can keep the mortgage even if DH leaves his job (which is a plus), and 2) we would take on early breakage costs on about 300k of our 730ish loan (the other 450 is mega subsidized) if we sell the house AND the going rate at the time is higher than our fixed mortgage rate (a negative for us since the current employee mortgage we have does not come with breakage fees).

Here are our current vital stats:

House value: around 1.5 million
Mortgage amount: roughly 730k
Rate: 1.5%
Duration: 25 year fix
Early breakage fees: no
Monthly repayments: about 2650/month

And here are the new options we’ve been offered:

Rate: 1.2%
Duration: 25 year fix
New payment: 2552/month
Early breakage: yes, on 300k of the mortgage, if the rate for the same mortgage at the time of sale/repayment is less than 1.2%

... and so on and so forth, with the following other rates (we would go back to variable after the fixed term):

• 20 yr fix at 1.15%, 2535/month
• 15 yr fix at 1.1%, 2517/month
• 10 yr fix at .9%, 2450/month

Now, part of me is tempted to go for the 10 year fix, partly because I doubt we’ll be in this house for that long, but also because I doubt rates will
stay so low for so long! Early breakage costs would be zilch in this scenario I expect, though it worries me if we decide to stay longer and rates have skyrocketed.

We could strike a middle ground and go for the 15 year fix that would at least get us through to when our youngest is definitely in uni. Also very low rate and low likelihood of being liable for early breakage.

Finally we could stay where we are at the 25 year fix at 1.2%. Still better than 1.5 and would carry us through till the house is paid off. But I very much doubt we’ll still be here in 25 years! I suppose if we move though then the long term fix would keep us safe from crazy price fluctuations and we could just rent out the house if the rates were STILL this low by the time we need to move on.

If you’ve made it this far, congratulations! 😅 I suppose my basic question is whether it is worth taking on the risk of early breakage costs, which could run in the range of 25-30k, in order to secure a lower long term rate. The savings over 10 years would certainly make up for that, but then we would be taking on other risk in terms of carrying a large mortgage that would be vulnerable to interest rate fluctuations. Thoughts?

I would either go for the 10 year rate or stay on 1.5%

Why? Because 10 years gives you a brilliant rate and you know that you probably won't move thus incurring the high charges.

Looking at the likelihood for 15 years, not likely but possible. 25 years definitely not worth it as you would almost definitely have to pay the charges.

So I would choose 10 years, saving 2400 per year and 24000 over the 10 year period.

Have you considered the P11d issues.

Are the definitely NO early exit penalties for a 10 year fixed rate of 0.9%?

That is a ridiculous good rate, nearly interest free mortgage!

www.gov.uk/government/publications/rates-and-allowances-beneficial-loan-arrangements-hmrc-official-rates/beneficial-loan-arrangements-hmrc-official-rates

The mortgage forum section of moneysavingexpert is full of brokers and number crunchers who can do the figures for you and advise.

I will look into the mortgage section, Lightsabre, thanks.

We are not in the UK so the P11d issues aren’t a thing for us.

I guess the complicating factor, as mentioned above, is that there will only be exit charges if the mortgage rates when we sell are less favorable than they are now. I expect that even the 25 year fix rate of 1.2% will look pretty good in 5 years... I mean, how much lower can central banks go? I could be wrong. But in some ways I suppose it’s good news that the early exit fees will only be an issue if we are able to get a better mortgage than our current one when we do sell, as it will still mean longer term savings overall. In that sense, the 10 year one feels riskiest as we almost certainly won’t have the exit charges, but we may end up on an awful rate if things go up and we decide to stay here longer.

On the other hand, the lower 10 year rate means we’d basically be overpaying 200 per month toward the principle over the next 10 years if we keep payments the same, so we will owe less in 10 years than we otherwise would on the other rates. Argh, I don’t know!

What are the chances of rates going up dramatically in the next decade, in people’s opinions?

Correction to above, there will only be exit charges if the mortgage rates are more favourable (by which I mean lower still) than they currently are.