Please sense check our mortgage plans

[brogueish]

I don't have anyone other than DH to talk about money stuff with in real life, so I'd be very grateful for views on our remortgage plans. I think we're doing the right thing but is there anything I've missed or not thought of?

Our current 5 yr mortgage deal ends this year. We have been overpaying and the value of our mortgage will be around 70k. Current deal has 13 years left. I think we want to reduce new term to 5 years and fix for life of mortgage. Broker has found a deal with 4.5% rate that looks reasonable, is there any good reason we shouldn't take it? We can keep reviewing for a better rate until around mid November, but on this rate the new payments would be less than we have been overpaying. We are late 40s, both in stable employment, one primary age child.

The niggles are

• The house is a bit small for us and we'll need to move at some point - although there's no immediate rush. We're likely to have inheritances - not millions but enough - within the next 5-10 years, and the broad plan is to sell this house when mortgage free and combine with inheritance to buy a "forever" home without further borrowing. Would we be better off selling (at some loss due to current circs), borrowing now and ploughing money into a new property instead?
• Fixing for 2 or 3 years instead of 5 - thinking about rate movement. I feel that having two sets of product costs in 5 years might offset any potential interest saving, but is that correct?
• Further reducing the mortgage term. The 4 year figures feel like more of a considered commitment and we are generally very risk averse. Overpayments made on the 5 year deal would reduce monthly payments but not the term.

Apart from wishing I had a crystal ball, is there anything else I need to think about? Thanks for reading.

If you think rates would come down in the next 5 years and don't want to commit to a fix for that long would you consider a tracker rate so it comes down if the rates do reduce. Obviously this comes with an element of risk that they might go up again but you would need to work out what you think the likelihood of this.

If the house was big enough for you I would say do it. Being mortgage free in 5 years would be enough incentive and although there are noises about interest rates coming down 4.5% is a decent rate. However as you have a child and say that the house is really too small I would fix for two to three years and keep overpaying. Depends on what the penalty is for repaying early. If you could port it to another property then I would go for it.

House prices are unlikely to be lower than they are now again, the general trajectory is always an increase in prices. The fact you are selling at a loss now means house prices are lower, if you wait until you are "up" then the next house will have gone up in value as well.

I would prioritise upsizing if you feel you need it. However I've never been in a rush to get rid of the mortgage personally and have always pritoritised a bigger house.

I am no expert but i doubt the rates are going to go down a great deal in the next 5 years. All predictions seem to suggest they will come down a bit and then hover for ages.
I personally think 4.5 is a good rate. We fixed for 5 years last year at 4.69 and i feel like we dodged a bullet.
The last couple of years of your mortgage, say in 3 years time if you fix, the amount you owe will be quite small, so if you get inheritances early then it wont make a huge difference if you still have 20 or 10K left on your mortgage.
The additional money it frees up every week could perhaps be put aside as a moving costs fund to help cover legal fees, perhaps a lick of paint etc when you buy the forever property.
If it were me i would fix for 4 years to reduce spending on interest but that would be my personal preference.
Best of luck OP it sounds like you are in a really good financial position.

Thanks so much this is all very helpful and has focused my thoughts.

On the subject of product costs - sometimes you might be offered something like rate X with cost £1000, rate X+x cost £500, and rate X+y no cost. On a relatively smaller mortgage you can work our the impact of a small interest rate increment compared with the product cost, and it may be cheaper to take a slightly higher rate.

Yes,I would go with the 5 year fix at 4.5%. I believe that the very low interest rates have gone for good. I wouldn’t rely on receiving inheritance money when making future plans though, so I’d be rethinking that part.

Does this deal allow overpayment? If so maybe make the term 10 years but with a 5 year fix and overpay to pay off in 5 years. I know this sounds like exactly the same thing as a 5 year term but you have the option to stop the overpayments if life throws a curveball your way.