Ok, we’ve been in our current property for 5 years. When we purchased we had a tiny deposit sadly and as such we had very few options available to us at the time mortgage wise. The best we could get was a 5 year fixed at…. Wait for it…. 6.9%. We’ve therefore been paying silly money for the past five years for our house. Our fixed term is coming to an end shortly and we will be dropping to the standard variable – 2.5% I think. So we will be paying an awful lot less than we are now thankfully.

Given the current rock bottom interest rate we don’t know what to do. Stick with the variable and enjoy the financial freedom for a while or fix again for another 5 years at about 4.2%. My wife says fix it but I’m of the opinion that despite things being tight at our current 6.9% we have managed ok so if we stick at the current variable rate it’s going to be some time before we start getting back into the realms of our extortionate 6.9% rate again. Anything up to that point we will be fine. Am I being careless or is my wife being needlessly sensible?

I don’t think anyone can answer this for you – if anyone could predict interest rates…

I have no experience in this area, but i’d take the variable and put most of the difference from the 6.9% you are currently managing on in a savings account.

it’s going to be some time before we start getting back into the realms of our extortionate 6.9% rate again

Same conundrum here as we look to move house. It’s impossible to know as it depends on recovery. The UK is hitting the numbers but a lot of that seems to be from less than ideal spending.

One half way house possibility is to stick on SVR for now but as soon as the rates do go up, fix as it seems likely that the rates will gradually rise to a more reasonable percentage (since these near zero rates are very unusual). You may end up paying a bit more but you may well save a fair bit until the rates start to move.

Don’t know your numbers etc but one option would be to stick with the variable for a year or two at that rate but pay off extra so next time round your LTV might get you a better deal (from what we saw 70/65 is the threshold for better rates). We’re just changing to an other fixed at 2.9 for five years rates are likely to rise in the near future but they won’t be galloping up (he hopes).

@tomhoward,he’d be much better off overpaying on the debt rather than saving, currently

my current rate is 5.39% runs out in march SVR is 4%

currently best rate i can get at my bank is 4.75% on a 5 year fix

if rates go up by the 0.25% they have been expecting (but not getting the employment figures they want)then ill look at fixing again – but in the mean time ill be keeping my payments up at the 5.39% level which means significant capital repayment each month instead of gnawing small bits off…..

might not work for you if things have been tight.

We moved house in November 2013, and took out a 2 year fixed, on the basis that if I took a 5 year fixed now, it’d potentially end during an interest rate rise, I figured rates are unlikely to go up/only go up a small amount in the next 2 years, so I’m better off fixing for 5 then. Not sure if that makes sense or even helps! In your position I’d be tempted to leave it a year and try and save some cash away as an emergency fund, then look at fixing for 5.

IMHO Interest rates will not rise until well into 2016. I’m not the only one, various Economic think tanks and experts also share this view.

I am in a similar position, and planning to review he situation when interest rates actually do go up. I may miss out on a percent or 2 when I fix, but I’m planning to ride the low rates for the moment.

You could always stay on the lower rate for a while and put the difference towards paying off more of your mortgage. If it’s a few hundred quid, you’d make a nice dent in the mortgage before interest rates go up.

Whatever you do, I’d keep paying what you are now. You’ve managed, so now you’ll be overpaying by a lot. That will make a huge difference in 10 years time.

Stabiliser, good point, well made. This is why I’m not a financial advisor.

My thoughts were to stick with the SVR for a year, maybe 2 safe in the knowledge that the SVR won’t climb to anything like 7% in that time. Save the extra or as suggested pay off bigger chunks of the mortgage.

I have no experience in this area, but i’d take the variable and put most of the difference from the 6.9% you are currently managing on in an savings account offset mortgage.

I am in a similar position, and planning to review he situation when interest rates actually do go up. I may miss out on a percent or 2 when I fix, but I’m planning to ride the low rates for the moment.

You could always stay on the lower rate for a while and put the difference towards paying off more of your mortgage. If it’s a few hundred quid, you’d make a nice dent in the mortgage before interest rates go up.

Exactly this. That was my logic anyway. Being financially naive I just wasn’t sure how, historically speaking, rapidly interest rates have climbed.

I may miss out on a percent or 2 when I fix

A percent or two over 5 years is a lot though.

richmars – Member
Whatever you do, I’d keep paying what you are now. You’ve managed, so now you’ll be overpaying by a lot. That will make a huge difference in 10 years time.

This is what I would do (assuming you are allowed to overpay on the mortgage). Just don’t go over any annual overpayment limit if there is one.

I’d go on the lower rate variable rate myself, but continue to pay the same amount unless you are really stretched, in which case continue overpaying but tone it back a bit.

Wot others are saying… stay on low variable rate and overpay. 2.5% is good by any measure so take it as long as it’s there. You’ll almost certainly have to pay a fee to fix at a higher rate – the very definition of insanity!

Wish I had overpaid more, and earlier, in my mortgage career. I didn’t even know you could (and to be fair, earlier mortgages were more rigid). Instead – after interest rates fell and I got the letter saying the prepayments had fallen, I would simply spend the difference – although could afford to keep at higher levels.

It makes a scary amount of a difference.

it is indeed peter but what about a % or 2 of a lower ammount ? its a less significant number.

Whatever you do, I’d keep paying what you are now. You’ve managed, so now you’ll be overpaying by a lot. That will make a huge difference in 10 years time.

+1, we’re on the SVR as it’s lower than anything else we could get, and (IMO) if rates do go up then homefully they’ll do what they did on the way down which was follow the base rate +1% ish untill it got to 2% then they stayed and the base rate dropped, so there might be three or four rises before it even shows up in mortgage repayments.

Interest rates at an all time, fix it and fix it for a while, 10yrs?

the other thing to bare in mind or at least i do …. the more the bank pester me to move to another fix – the more determined i am to stay on the SVR.

fix for 10 years …. ok sir – thatll be 7%. – ok i take that back seems that with 80% you can get 4.59%

Fixed will you peace of mind – e.g. we’ve fixed energy tariff in the last month – and it’s the same with mortgage — but as trail_rat is indicating, if they are pushing it that hard, it perhaps is at least as much in the banks’ interest to do this — they’re unlikely to be knowingly making a loss.

I suppose you just don’t know the point of inflection (?) where interest rates will veer above your fixed rate, but the projected rise now seems quite far away for political as well as economic reasons.

A former colleague fixed his mortgage back in the day, for 3 years; he was only “winning” in one month out of 36, the month Lawson decided the UK should come out of ERM (Black Wednesday) and interest rates hit 15%. The rest of the time – out of luck.

^^ Probably won’t get a decent deal on a ten year fix without a chunk of equity in the property. But if you are worried about outgoings in future then poss worth speaking to someone.

It is unlikely rates will go up materially in the short term and your tracker rate is relatively low so prob best sticking with that. Whilst the unemployment figures have surprised, Carney only said 7% would be a level where they consider a rate move. The problem they have is that whilst unemployment is falling, real wage inflation is almost non-existent. The currency has also seen a period of relative strength and any shift on rates would likely increase that position with the associated impact. Besides, the whole game plan is to inflate away debt and they don’t want to endanger that by lifting rates too quickly. More chance of them running loose for longer and then tightening faster.

Might have already been said but don’t put the extra in a savings account, use it to pay off the mortgage or any other loan with a higher interest rate. Interest rates on what you owe will pretty much always be greater than what you save. If you over pay on your mortgage now you’ll be able to reduce payments later if you need to. Too many people feel financially secure because they have savings when in reality their gross debt dwarfs the savings. If you have a good credit rating look at getting a bank account linked to your mortgage you can borrow against if you need to access cash fast rather than having savings sat there that could be reducing your base debt and future liabilities.

Oh and go variable but ideally keep paying the same, it’s going to be quite a while before rates hit 7% again, the BoE were making all sorts of noises yesterday about the unemployment rate being only one of a number of factors to consider when setting the base rate, suggests they’re not looking to raise it soon. If it did go up by 0.75% or 1% quickly a lot of people are going to stuffed.

A percent or two over 5 years is a lot though.

Depends on your current mortgage, and wether fixing early will cost more.

Keep paying ridiculous amount as an overpayment whilst on tbe svr. You will be pleasantly Surprised by what it achieves when and if the time comes to remortgage…

The banks rarely lose out on a fixed deal. But sometimes the knowledge that your mortgage payements will be x for y years is a perfectly valid reason to fix.

The advice above about overpaying is good advice. More of the capital is getting paid off, meaning you will have access to better deals when rates do eventually go up.

We moved off a fixed rate to a SVR of 2.5% 3 or so years ago. In effect our repayments halved, so we have been paying at the same rate and every month takes 2 off the term. I had to phone the mortgage company to ask them to reduce the term as they reduce the payment by default. It does reduce the mortgage rapidly.

We are planning to move and will be looking to port our existing SVR and top up with a fixed, so a mixture of both. Hedging my bets.

I do think there will be a massive crisis if rates move up just a few% more, its not in the interests of anyone to do that so I think it is slim we will see high interest for a long long time….I reckon 2020’s

*I am not a financial advisor*

My two penneth….yes pay as much as you can, stick with variable as the fixed rates are not good. Chances are rates will stay the same until 2017 at the earliest.

One thing though…is don’t forget to live your life as well, rather than becoming totally pre-occupied with paying the mortgage off asap. Put some away for a decent holiday, take the Mrs away for a special weekend very occasionally. You only get one life so try and get the balance right.

We’ve just fixed again for 5 yrs for 1% less than our current lenders SVR, and 2.4% less than our previous fixed rate. Could probably save a bit doing something else but the truth is I don’t have the time to keep watching rates the whole time. Fixed rate that I know I can pay, and by the time that’s run out we’ll be almost down to 50% LTV. I like not worrying about it!

One thing though…is don’t forget to live your life as well, rather than becoming totally pre-occupied with paying the mortgage off asap. Put some away for a decent holiday, take the Mrs away for a special weekend very occasionally. You only get one life so try and get the balance right.

Sound advice.

Thanks all for the very good balanced advice (as always). It does seem that the consensus is to go for the SVR for the short term and make some substantial payments on the mortgage with the difference (and enjoy a bit of it as well) which is more or less what I was thinking.