Mortgage Advice - Our mortgage is coming to an end and we really need some advice 🥰

[Jennie2015]

Hi,
I'm hoping for some mortgage advice please 😊.
We've been making maximum overpayments and our 5-year fixed rate ends in May 2025, but we still have 10 years left on the mortgage. Our remaining balance is £27,000, and we can afford an £8,000 overpayment, bringing it down to £19,000.
Our current lender's variable rate is going down to 7.49%. I'm not sure what to do. We were thinking about going for a 3-year fixed rate and paying off the £19,000 in that time. I spent over an hour on the phone with our provider today, and I'm still really confused about offsets, variable rates, fixed rates, etc. They said if we fix now and shorten the term, we'd have to do a whole new application.
I've been Googling, and it seems like maybe we should stay on the variable rate and overpay as much as we can? If we do that and pay it all off, I'm guessing there aren't any fees, and the mortgage just finishes?
I cant seem to decide which one would be best for us, ideally I would like to get it down asap. I am worried they may not lend us the money with it been a short term (3 years) if we go for a fixed rate and pay a lump sum.
THANK YOU! ❤️

I presume the fixed rate is lower. Can you go for the fixed rate, don't change your mortgage term and keep overpaying?

If you can pay off large amounts might be easier to go on variable if it allows any size overpayment
It s not a big mortgage and if you can pay it off in 3 years just do that.

If we change onto any other product with a lower term we have to re apply with them otherwise it would be another 10 years. The variable from what I understand we wouldn't be tied into a contract with so we can repay it asap.
It's all so confusing 🫨

I think in your case, paying for advice from an independent broker would be a good investment.

Yes if you stay on the variable rate then you won't have any fees or charges to pay if you make overpayments.

If you move onto another fixed rate you will probably only be able to make a 10% overpayment each year without incurring Early Repayment Charges.

I'm not a financial adviser (although do work in mortgages) and if you can reduce your balance to £19k and think you will pay it off within 3 years then I'd be inclined to stay on the variable rate.

I'm confused as to why you need to reapply.
I've changed 4 times with my provider and never had to.
Just fixed for different periods each time.

I would pay off what they allow you to now and then take another 3 year or 2 year fixed rate mortgage, overpaying again by the 10% you’re allowed to each year.

Can you fix for 3 years, overpay what is allowed, meanwhile save your proposed overpayments in a separate account, then just pay it off in a lump sum in 3 years and 1 month?
Whether or not that is cheaper than overpaying on the standard variable rate is a job for an online mortgage/loan calculator or chatGPT.

This might depend on the provider, but I think you should be able to fix for three years, and if you pay off in full by the last month of your 3 year fix you won’t have an early repayment charge.

do double check this though but I am sure this is correct of all mortgages.

An offset works by you having a linked savings account where you don’t earn interest but don’t pay interest on that part of your mortgage. So would be like earning 7.49% tax free. Check the t&c but there are no limits on ours so can effectively ‘pay off’ a chunk (by putting it into the savings account and not paying interest on that portion) but still have access to that money if you need it. So effectively no overpayment limit and very flexible.

We came to the end of a 3 year mortgage last year and at that point only had a few thousand left to pay so just paid it off when the 3 year fix came to an end.

With such a small mortgage I don't think this is a big issue.

Your choice is flexibility (SVR) vs lower rate (fixed). Which feels right to you?

You can just get a fixed rate for three years and put the overpayments into a savings account then pay it off at the end.

It is important to make a good decision, but when choosing between two good/affordable options, don't waste time overthinking!

It depends on how much you are planning to overpay by. If you are planning to overpay by large amounts considerably over the amount allowed on a fixed term you are probably best off going onto the variable.

When my mortgage only had a few years left and my fixed rate ran out, I just applied to my bank online, took out a 2 year fixed rate and then paid off the balance at the end of the fixed term. No fees as I kept the mortgage with the same provider and no fees to pay the balance off at the end.

That’s what I did too ( though 3 year fix at the end not 2).

It may not be something that Barclays offer new customers but we can make one off additional payments of up to 10% of the remaining loan AND monthly additional payments of up to 3x our monthly payment. Our financial advisor was quite surprised as the 10% overpayment only is a widely imposed rule, but not universal it appears?

What is the difference in monthly payments between staying on the svr and fixing. Probably not much at all? I would just go in to svr and overpay a much as possible

What about getting a loan for 3yrs for £19k and paying off the mortgage in full?

With such a small mortgage it may not be worth paying any fees to fix. Eg if there are £1,000 fees to fix that’s 5% of your remaining balance (as a one off, not Pa).

A 1% difference in rate is £190 for a year on £19,000 (and of course the balance will be falling all the time, so interest will be falling).

It may not be worth stressing too much over.

Here’s my thinking;

Offset
I wouldn’t do an offset because it sounds like you have chosen to pay off your mortgage rather than keep lots of savings. An offset is for people with a lot of savings.

Comparison between fixed and variable;

In a spreadsheet work out an interest cost comparison over 3 years (month by month with 4 headers; mortgage amount, interest rate, monthly interest charge, monthly mortgage payment including any predicted overpayments) of two options;

• Cheapest variable rate with no early repayment charges (and no product fee) you can get (7.5% sounds like a standard variable rate and there are cheaper options I’m sure) with overpaying at the level you think you can each month

• Cheapest 2 year fix rate with no product fee you can get with monthly payments based on the lowest term of 10 years they will give you plus 10% overpayments. Then a one off large overpayment at the end of the 2 years, followed by one year of a standard variable rate (assume 7.5%) to finish it off.

Choose whichever option comes out lowest in total interest payments.

But like others have said at such a small amount, it’s unlikely there will be much difference between options.

Variable
Nationwide do a variable tracker rate with no early repayment charges and no product fee. I would find the best rate you can get with no early repayment charges.

Fixed rates
It may have changed but when we remortgaged a few months ago these were a lot cheaper than variable because the banks have baked in a predicted rate reduction over the next year or so. But you have to factor in the fact that you will not be paying off the amount as fast and therefore could pay more interest over the next couple of years.

Nonsense. They owe £19k. Number 1 priority is to not pay any application or broker fees.

What's the issue with making a new application? Unless you have credit history problems, it will sail through surely? Your biggest problem will be to get a mortgage with a new provider for only £19k - many have minimums of £30k+.

But you could take the minimum over any term for the best available rate without fees and save your overpayments separately - you can usually get a better rate doing this anyway.

However, owing that amount, I'm not sure I'd actually bother with a mortgage. If you have a decent credit rating you could each get a money transfer credit card take half of the outstanding mortgage each and use the money to pay off the mortgage when the deal expires.

I've just done an eligibility calculator for me and VM do this for a 4% fee, you might get a different deal - or look at your existing credit cards to see if any do an offer - I run 0% balances offset by savings to make a bit of extra money and I had a dormant Sainsbury's card that offered me a completely free balance or money transfer (no interest or fees) so I now have £9k costing 0% offset by £9k of savings earning 4.5%.

Have a look at:

https://www.moneysavingexpert.com/eligibility/credit-cards/search/

Pay the minimum and save the rest separately. After a year, look for another deal with the lowest fee - I've been doing this for 20 years and never actually paid a fee for a balance transfer. Rinse and repeat until you've paid off the money that was your mortgage (or keep going as long as the offers are available, just don't forget to always match the borrowed money with savings).

This. London and country is the best. We found them great. You don’t have to stick with your current provider. We didn’t pay any application or broker fees.

What rate are they offering for a 3 yr fix? 7.49% feels high, you’re paying for flexibility. I’d be inclined to take the fix, save your surplus in a good high interest savings account (better if you can beat the mortgage rate) and you’ve got a lump sum ready to repay the mortgage when the fix ends.

Take advice. It might not be best to pay off the 9k initially. I'm sure some lenders have a 25k minimum for their mortgages (won't apply to SVR but if you wanted a small fixed).

I'm with Barclays/Woolwich and I can make as many small overpayments as I want as long as each amount is not more than 3x monthly payments.

You could also look at an offset mortgage and save into that rather than overpay so you pay less interest and have the amount to just clear it at the end.

It really depends how long it will take you to save the rest as to the most sensible approach.

Definitely think OP should just stay with their current lender and choose a fee free option rather than move to a different lender with such a small mortgage.