I got a mortgage from 2007 for 40% of a shared ownership flat in hackney. I always just paid interest only and its variable rate, which has been great up until a year ago or so but probably an idea to change it now...the rate's up to 8.49%. so I just got off phone with then and they offered a 5 year fixed at 5.5%. they are pretty keen for me to move to repayment too. i can afford the monthly payment, a bit tight but doable. I guess my question is, does that sound like a good rate? am I going to regret being fixed for that long cos interest rates are going to crash? I guess thing is I might need to move... but I guess I could just rent it out, or transfer the mortgage to different place if I bought. kabbes you're ace at this kind of stuff aren't you?
mortgage advice
- Thread starter rutabowa
- Start date
baldrick
hmmmmm
Why did you go interest only? Have you got savings to pay off the capital? If you'd had a repayment mortgage you'd have got a fair amount of equity by now. But perhaps you have a plan.
Don't think interest rates are going to come down much in the medium term. What are the early repayment clauses on the mortgage? In case you do move or want to remortgage before the 5 years are up. And if your financial situation improves, can you make overpayments?
Don't think interest rates are going to come down much in the medium term. What are the early repayment clauses on the mortgage? In case you do move or want to remortgage before the 5 years are up. And if your financial situation improves, can you make overpayments?
Might be a good one for a mortgage broker to look at as it is not your bog standard scenario. Difficult to comment on rate with the details provided but I'm also surprised you're on IO - I thought they were for landlords or in the past people had another product that payed off the capital at some point in the future.
A380
How do I change this 'custom title' thing then?
I’d probably take a five year fixed at the moment. Things are going to get worse before they get better. And I do t think we will see cheap money for at least a decade probably more.
As above, do you have a pension lump sum or similar investment to pay the capital off? I’d probably go for a repayment now if you can afford it.
As above, do you have a pension lump sum or similar investment to pay the capital off? I’d probably go for a repayment now if you can afford it.
yeh when I first got the place it required a lot of mortgage broker wrangling and it was allowed to be IO because of my pension... every so often they asked "maybe you should start paying us back?" but I was just like "no thank you". I think you're right tho it's probably time to start repaying, my income is pretty secure with teaching. also found out I own 40%, I thought I only had 25%! good news on the whole, wish I'd bothered to call them when interest rates started going up
platinumsage
HaveMyPassword123
Have they not offered anything else apart from a 5-year fix like a shorter fix or a tracker or other discounted rate? Might be worth pushing them on that so you have more options to consider. It would be bizarre if their only two products are 5.5% for 5 years or 8.49% standard variable or whatever it is you're on at the moment.
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mm yeh... theres a 2 year fixed at 6.2% or 10 year at 5.5% too. I guess 5 year makes sense because I'll prob need to move out at some point in medium term as its 1 bedroom... but I wouldn't want fixed for 10 years as I guess at some point interest rates will come down... does that make sense? and I'd feel a bit nervous on a tracker at moment
Elpenor
Dancing as fast as I can
If you’re paying IO on 40% of shared interest you don’t really own anything at the moment, sorry to be the bearer of bad news
yes a lot of people have patronized me with this information over the years like I'm a idiot, but here are the pluses:
- the monthly cost is way cheaper than the going rent for a 1 bedroom flat, so even if I somehow just lost the whole thing and didnt get any return it would STILL have saved me 1000s
- in actual fact, the flat has already more than doubled in price, and if I did sell I get 40% of sale price. so say it sells for £400,000, I get £160,000, pay off the 68,000 I still owe, and keep the rest.
It was absolute a great decision to do it back then, in every way... it is just impossible to do now.
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Are you sure? Seems strange to put down 5% deposit, pay nothing off and then get given 40% of value when sold.
I am shit with money and don’t understand how to make what I have work for me. Having said that I would prefer to be paying off whatever capital I owe, and not be tied to anything for too long. So I’d go for the 2 year fixed in your circs, unless you feel it’s your forever home, in which case the five year looks good right now
Yes I am sure. Well, you don't get given the full 40% like I said, you use it to pay the full remaining balance of the mortgage.
I own 40% of the flat, and I also owe the bank £68,000. maybe its clearer to think of it like that. (and it is also legally accurate, whatever anyone says about "not owning a house if you had to get a mortgage")
no bank is giving mortgages with a 5% deposit now tho, I was just lucky to do it while it was possible
mm I get that... it means I cant sell in the next 5 years (well i could but the early repayment fee is pretty big). I could transfer mortgage to a new flat with no fee apparently, but that is probably tricky
smmudge
i know the smudge is true
The very best thing to do is to speak to your previous or a new broker.
If you went for 5.5% 5 year fixed that wouldn't be the worst thing as that is quite a competitive rate at the moment.
But if you're thinking of moving in the next 5 years, best not to fix for 5 years. Especially if the penalty to break it is harsh.
Finally if anyone tells you it's best to fix, not to fix, take a tracker, make any guess with what rates are going to do in the long or short term, they have no idea what they're taking about
If you went for 5.5% 5 year fixed that wouldn't be the worst thing as that is quite a competitive rate at the moment.
But if you're thinking of moving in the next 5 years, best not to fix for 5 years. Especially if the penalty to break it is harsh.
Finally if anyone tells you it's best to fix, not to fix, take a tracker, make any guess with what rates are going to do in the long or short term, they have no idea what they're taking about
I don’t think it is? My kids have both done moving mortgages with relative ease… I guess if you’re already thinking you’ll be wanting to sell the flat within the next 5 years, that should inform your mortgage choice?
the process of switching is prob fine, it is just the actual finding a place, buying a place, knowing where you want to live/who with etc etc... however the early repayment fee wasnt quite as bad as I thought it might be, and it goes down ever year of the 5.... and I guess if it came to it and I wanted to move early I could also rent out the flat again.
hm interesting... arh
it has been a fine solution since 2007; like I said I mainly saw it as a way of paying (a lot) cheaper for my monthly accommodation than rent would have been, rather than as an investment. Even if the flat was taken off me right now and I didn't get any money at all, then it would have been worth it for the amount if money I saved on rent over last 16 years.
however the current offers are all repayment anyway.
Puddy_Tat
naturally fluffy
A few random thoughts -
if they do, then maybe. on the other paw, you're not going to have an 'oh shit' situation if interest rates go up. don't think people were expecting rates to go up as much as they did when the shit hit the fan in the 90s.
i take it you've checked that you can? a few leasehold places have a rule that says you can't, and i know with council / HA rentals you can't. i've never gone near shared ownership so not sure, but worth being absolutely sure you can if doing that is a possible.
usually possible, although there would probably be a fee for doing it.
yes, that. i get the feeling that assorted economic shit is probably going to hit the fan in a few years as a result of current government kicking a lot of things down the road. whether whichever bunch win the next election manage to do the same is an unknown.
if they do, then maybe. on the other paw, you're not going to have an 'oh shit' situation if interest rates go up. don't think people were expecting rates to go up as much as they did when the shit hit the fan in the 90s.
i take it you've checked that you can? a few leasehold places have a rule that says you can't, and i know with council / HA rentals you can't. i've never gone near shared ownership so not sure, but worth being absolutely sure you can if doing that is a possible.
usually possible, although there would probably be a fee for doing it.
Finally if anyone tells you it's best to fix, not to fix, take a tracker, make any guess with what rates are going to do in the long or short term, they have no idea what they're taking about
yes, that. i get the feeling that assorted economic shit is probably going to hit the fan in a few years as a result of current government kicking a lot of things down the road. whether whichever bunch win the next election manage to do the same is an unknown.
yeh, in the end there is a big element of luck.
re: renting, I take your point but ime Peabody dont care who is living in a place as long as they get paid on time and they don't cause trouble... soo many flats get sublet in our block.
I wish I had the magic goggles to give you a definitive answer to the question of which is the best choice. It’s not straightforward though, unfortunately.
What you have to remember is that the banks have priced their deals so that they are broadly neutral between the two deals. However, that includes the expectation that they will be compensated for giving you certainty. So they think 5.5% fixed for five years will likely cost you more than 6.2% fixed for two years (and then remortgage). However, they also think that the extra it will probably cost you is a suitable price for the certainty the long term fix brings you.
Now, you have information about your personal circumstances that they don’t. That includes whether or not you will be repaying the loan. If you intend to repay quickly then a long term deal is less valuable. You also know whether or not you can cope with the risk of not fixing. These are personal circumstance questions and I can’t give you a definitive answer.
What I will say is that any fixed mortgage is like buying an insurance premium. Like with any insurance, you should expect that it will cost you more money than you saved. But that if things go badly, you’ll be glad you protected yourself. So if you can afford to not buy the insurance, you’re probably better off without it, but you’re taking on downside risk by doing so.
What you have to remember is that the banks have priced their deals so that they are broadly neutral between the two deals. However, that includes the expectation that they will be compensated for giving you certainty. So they think 5.5% fixed for five years will likely cost you more than 6.2% fixed for two years (and then remortgage). However, they also think that the extra it will probably cost you is a suitable price for the certainty the long term fix brings you.
Now, you have information about your personal circumstances that they don’t. That includes whether or not you will be repaying the loan. If you intend to repay quickly then a long term deal is less valuable. You also know whether or not you can cope with the risk of not fixing. These are personal circumstance questions and I can’t give you a definitive answer.
What I will say is that any fixed mortgage is like buying an insurance premium. Like with any insurance, you should expect that it will cost you more money than you saved. But that if things go badly, you’ll be glad you protected yourself. So if you can afford to not buy the insurance, you’re probably better off without it, but you’re taking on downside risk by doing so.
teuchter
je suis teuchter
There's a psychological benefit to a fix, in that once you've made the decision that's that and you don't have to think about it for another year / 2 years / 5 years / whatever.
Unless you're someone who enjoys following all this stuff, reading moneysaving expert every day, filling in application forms for financial products all the time and so on.
As for interest only / repayment - I'm another interest only person, on a similar sort of logic (and beneficiary of similarly lucky sort of timing) as rutabowa . Anything of the mortgage I pay off (whether that's in lump sums or regularly) is cash that I could otherwise have accessible as savings. Any savings that I can put away at a similar-ish interest rate to the mortgage interest rate, effectively don't cost me very much to have available. Anyway...with that approach, a repayment mortgage doesn't make much sense to me. I can choose to pay off lumps each year and/or each time I renew it, at a timing of my choosing, rather than being obliged to do it every month whether I want to or not. I think the banks try and put you onto repayment mortgages because they are instructed to encourage sensible financial planning and so on. It surely can't be to their advantage to have you reduce the amount you're paying them interest on.
Unless you're someone who enjoys following all this stuff, reading moneysaving expert every day, filling in application forms for financial products all the time and so on.
As for interest only / repayment - I'm another interest only person, on a similar sort of logic (and beneficiary of similarly lucky sort of timing) as rutabowa . Anything of the mortgage I pay off (whether that's in lump sums or regularly) is cash that I could otherwise have accessible as savings. Any savings that I can put away at a similar-ish interest rate to the mortgage interest rate, effectively don't cost me very much to have available. Anyway...with that approach, a repayment mortgage doesn't make much sense to me. I can choose to pay off lumps each year and/or each time I renew it, at a timing of my choosing, rather than being obliged to do it every month whether I want to or not. I think the banks try and put you onto repayment mortgages because they are instructed to encourage sensible financial planning and so on. It surely can't be to their advantage to have you reduce the amount you're paying them interest on.
I'm pretty sure if I went interest-only again I just wouldnt pay extra hardly ever... and as my wage is pretty reliable month cos of job it makes sense to force myself by having a repayment one. I reckon the psychological point is pretty important actually, I really procrastinate about sorting this kind of thing out so 5 years taken care of is appealing
