Protection against high interest rates down the line

[kitchenSink5]

I was hoping for some advice on finances. I have four years left on my mortgage deal and realise with the way things are - any spare money may well be spent on the essentials - but if I can I want to try and protect myself as much as possible from potentially high interest rates in four years time. I am slightly overwhelmed with all the info out there. The options I see are overpaying mortgage as and when I can or put some existing savings into 4 year bond and use it to reduce LTV when fox comes to end. Are there any other options and any thoughts on these things? What is everyone else doing?
I wish I went for a 7 or 10 year fixed now!

What’s to stop you fixing for the remainder of the term now. Is it the arrangement fee that negates any savings due to increased rates?

Over pay the mortgage whilst you can as much as you can
Set aside savings so that when it's time to fix a new rate you can also pay off a lump sum

How big is your mortgage, what’s your LTV and how long will the whole mortgage have left to run at the end of your fixed rate deal?

Overpaying over 10% a year would attract thousands in charges. So would fixing for longer now as I would essentially be redeeming and getting a new fixed rate. I think*

LTV is 60% currently - so not sure you can get better rates with lower LTVs.

Will still have 18 years left on term at end of 5 year current fix (so 22 at the moment).

Mortgage is currently about £150k which seems small compared to the figures I've seen in England but for me it is a lot. I'm in NI.

It's really easy when rates have risen to extrapolate that into the future. No one knows what rates will be doing in 4 years' time. If inflation is reigned in and recession hits, rates could well start falling again. What interest rate are you fixed at now?
Personally, I'd be saving in a way that protects your capital as much as possible from inflation, enjoying the fact that double digit inflation will erode your debt and sitting tight to see how the world looks closer to when your fix ends.

I'd recommend you do some calculations and work out if the cost of leaving your current mortgage early is worth the savings. With a relatively small mortgage it is unlikely to be worth it. But for us, about 50% of the £5k fee it cost to be released from the fixed rate on our previous house was paid for by the savings we made on the reduced interest rate we got for our new mortgage. And the remaining 50% was something we were prepared to pay to avoid rising interest rates as we were stretching ourselves on the mortgage (which was a the right move in hindsight and we will now definitely make those savings!).

If the fees aren't worth it, then I would personally go down the route of saving the majority of your "overpayments" in a separate account. That way, you can easily access them if necessary in an emergency. In times like this, with rising costs of living, I feel more comfortable having X months of living expenses in accessible savings than a slightly lower mortgage. You'll actually be benefiting financially if you can find a savings account paying the same, or higher, interest rate than your mortgage. If the interest rate is lower than your mortgage, then you will be paying a small amount of money (the difference in the two interest rates) but this is something I (personally) am choosing to do. When your fix expires, you can assess your life and appetite for risk at that point and then use some or all of your overpayment savings to pay off a lump sum. The absolute last thing you should be doing in the current climate though is throwing all your spare money at your mortgage and not having any rainy day savings so make sure you still have some savings left over at that point!

I have a huge mortgage with 18 years left on it fixed for another 3 years and £3k on credit cards at 0% for 24 months which I had been paying off £350 a month. I recently realised the lunacy of this and I am now paying £350 extra off my mortgage each month and paying the minimum £100 off my credit cards instead. This is taking thousands off my mortgage and reducing the length of the mortgage and at the same time I will have paid off most of the £3k on my credit cards.

There is no point saving money separately as the interest you receive on it will amount to much less than what you will be paying in interest on the mortgage, so pay it off directly from the mortgage.

Savings rates are poor

Better to pay extra into your mortgage

Also do you have a private pension & does your employer provide free contributions?

Keep it simple:

Overpay mortgage to reduce debt.
Max pension allowances to be tax efficient and provide long term.
Use ISA tax free allowances if you like savings and trust they won't erode too hard due to inflationary pressure.
Manage / track / budget discretionary spend so that you feel in control.