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Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

Last post Thu, Sep 17 2009, 3:59 PM by sparky76. 11 replies.
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  •  Thu, Sep 17 2009, 3:59 PM

    Re: Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    Hi Dan,

    Typcially you can make over repayments without penalty when you are no longer in a tied-in period (discount).

    At other times you can only make a maximum over payments per year.

    The only way to know what you can do is to check your mortgage agreement and ask your lender how much you can overpay.

    You may also consider if it is worth keeping the lump sum, and investing it to gain interest with which to pay the mortgage, depending on the diffference between the interest you could earn, versus what you are paying on your mortgage.

    Having the capital still at your disposal in uncertain times (unemployment) may be better than having committed it to your mortgage. For example if you were stuck one month for the repayment?

    HTH

    Sparky.

    • Post Points: 5
  •  Thu, Sep 17 2009, 8:54 AM

    Re: Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    Hi all

    On a similar note to this, I came to an end of my contract last year and have been on the variable since. I am likely to be made redundant shortly and the amount I receive will be able to pay off a significant amount if not all of my mortgage, my question is this, as I have no contract will I be penalised for this payment, or can I only pay at the standard £500 overpayment per month?

    Any help will be much appreciated,

    Thanks

    Dan

    • Post Points: 20
  •  Fri, Aug 21 2009, 8:10 AM

    Re: Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    Hi bob,

    The truth is that no one knows what is going to happen.

    Unless tttt works in the product team that creates and defines new products (mortgages loans etc) then tttt won't know any better than us what will happen with mortgages, even working in that environment they can't be sure where the BOE base rate will go, what the LIBOR rate will be or what political or possibly regulatory pressure will come to bear to change the market.

    You are on a good deal that is keeping close to the BOE base rate, and you can't switch to a more competitive (tracker) mortgage.

    Then it is a question of fix or track.

    We don't know when interest rates will rise, or to what point, but as it rises so will the cost of fixed rates.

    At the moment the cost of applying for a new mortgage is high, but the application fees were this high 3 to 5 years ago and the lenders are now making at least a 2% profit on fixed rate mortgages compared to 0.1% a few years ago.

    There is a lot of discontent at the banking industry as more and more people realise they are being exploited to get the banks back into their profit making ways.

    So we don't know at what point there may be a crackdown on the profiteering by the banks, the politicians and regulators are much more interested in bonuses and the general election next year to focus on underlying causes, and worry more about the headlines.

    Instead of applying for a new mortgage, why don't you

    a) stick the £1K in a savings account so that it's ready when you decide to apply and earn interest.

    b) pay the additional £1k off the mortgage and you'll be paying £25 a year less interest (based on the 2.5% BMR)

    If you keep your repayments artificially high lets say at the same price as the fixed rate would be, you will pay off your mortgage early, and also you will not be as affected by a rise as you will not have reduced your payments and spent the money elsewhere.

    You could save the overpayments to a savings account and over the year see how much money you have saved, and decide how best to spend it or repay on your mortgage.

    I think the key is to work out at what point you want to switch to the peace of mind rate (fixed) so that you are covered in the even that your BMR rate would go above this.

    HTH

    Sparky.

    • Post Points: 5
  •  Thu, Aug 20 2009, 6:09 PM

    Re: Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    Hi Sparky

    Thanks for the reply .. I really do appreciate the help!!

    I have cut n pasted this from the Nationwide website

    The Base Mortgage Rate (BMR)

    Customers with deals reserved on or before 29 April 2009 revert to the variable Base Mortgage Rate (BMR), our Standard Variable Rate, for the remainder of the mortgage term

    The interest rate of our BMR product is currently 2.5% and amongst the lowest standard variable rate of all major high street lenders

    If you choose to switch from the BMR to a new Nationwide mortgage product, it will not be possible to switch back to the BMR.

    This product has unlimited flexibility so you can overpay by as much as you like, when you like

    You can borrow back the money that you have overpaid at any time

    The BMR also offers a number of other flexible features

    There are no early repayment charges


    I checked earlier today and my mortgage will definately revert to the BMR (currently 2.5%) and not the significantly higher Standard Mortgage Rate (which is currently 3.99%).

    My thoughts were along the lines of "I'll stay with the BMR until interest rates look as if they are going to hike upwards and then see if there would be any benefit from switching to either a fixed rate or tracker rate"

    Then I got seriously confused after reading the post by tttt who seems to imply that the cost of getting a mortgage will only get dearer and dearer if I dont jump now.

    I just think that if I did pay £1k to switch to either a 24 month tracker (that will charge me an interest rate .49% more than the BMR) or a fixed rate (charging me an extra 1.3%) i would end up paying loads more than if I simply 'sit tight'?

    Like I say, I was seriously spooked by the advice given by tttt (a Nationwide employee)

    Thanks again for all your help!!!

    Bob


    • Post Points: 20
  •  Thu, Aug 20 2009, 5:04 PM

    Re: Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    Hi Bob,

    You are on the cheapest 'tracker' already if it states BOE base rate + 2%, and have a mortgage, so you are already on the boat - no point getting off the speedboat to get on a rowboat :)

    You need to check that you aren't on the Standard Variable rate, as this is higher, and the bank can and do increase this.

    The questions to consider are:

    How much can you afford?

    How much peace of mind do you need?

    How hard would you kick yourself if you fixed and interest rates stay low?

    At the moment the difference between your current deal and the best fix is 1.3%, plus the fees to remortgage (£1K application, plus valuation, plus solicitors?)

    How much would you save each month?

    Could you continue your payments to pay off more of your mortgage, building up the equity and reducing the interest you currently and eventually pay.

    You can probably google a mortgage repayment calculator to see how soon you could pay off your mortgage by overpaying.

    There was a tv series and a book a few years ago where they did an experiment / trial to see if people could pay off their mortgage in two years, which was very interesting.

    HTH

    Sparky.

    • Post Points: 20
  •  Thu, Aug 20 2009, 3:33 PM

    Re: Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    Now im confused :-(

    My current deal with the Nationwide has just came to an end and I seem to have 3 main options

    1. Do nothing and revert to the Nationwides 'Base Mortgage Rate' (currently 2.5%). No fees
    2. Take a Nationwide 2 Year Tracker: tracking at +2.49% making it 2.99% at present. This option will incur fees at £1K.
    3. Take a Nationwide Fixed Rate Mortgage: fixed at 3.79%. This option will also incur fees at £1k.

    The above poster recommends grabbing the 'Fixed Rate' on the basis that the cost of mortgages is going ever upwards even if base rates stay at .5% for a while (they will surely go up sometime).

    An earlier poster said that the Base Mortgage Rate is very attractive (and at 2.5% at present it sure is) and when this starts to rise then the go looking a tracker or fixed rate.

    so my question to those in the know is: a bird in the hand or two in the bush?

    Is it better to pay a for a cheaper tracker now (I can afford to take a bit of a risk so dont feel I need to 'fix' rate the mortgage) or for a more expensive tracker later? Is the cost of getting a tracker likely to 'sky rocket' over the next 12 months or so? The way I see it is I have to pay a £1,000 fee to track now when the Nationwide BMR is at 'no cost' and some 2.49% less?

    HELP This is doing my head in with worry in case I miss the boat somehow.

    Thanks in advance

    Bob :-)
    • Post Points: 20
  •  Wed, Jun 24 2009, 10:22 PM

    Re: Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    I am a Nationwide staff member and yes the lady who is on the fixed at 4.88 will revert to the BMR automatically currently 2.5%.

    Although the bank of england base rate is low at the minute o savngs rate are low, this will go up. Its just predicting corrctly how long this will be? in the meantime if you are looking for a deal now is the time to fix. As the banks are lending money to lend out to mortgage customers the lending rate for banks is going up. therefore the fixed rate deals on the high street have increased 3 times since the 8th June. The BMR will eventually go up and whe you then come to fix it rte will be high.

    I am currently on a 2.5% BMR rate at the minute however I a going to fix for as long as possible.

    • Post Points: 20
  •  Mon, Jun 22 2009, 6:05 PM

    Re: Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    I would just like to ask, along a similar line. I used to have a Nationwide mortgage and fortunatlly sold my house at the peak last year, without having to knock too much off the final value. I've gone into rented and would like to purchase again in the not to distant future.

    Asking what seems like a silly question, why would anyone want to go onto the fixed rates that are currently set at 5%+ when the current base rate for certain banks is 2-3%? Do you have to do this to have some sort of "initiation"? and is there anyway of bypassing this period and just going straight onto the banks base rate until you deciede at some point to take an offer up. An "offer" that costs you a lot more money in the long run doesnt seem much like an offer to me.

    • Post Points: 20
  •  Wed, Jan 07 2009, 8:57 PM

    Re: Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    You are quite right - it would be stupid to switch to another short term deal either with your existing lender or a new one, whilst you are entitled to Base Rate + 2%. There is nothing in the market that approaches this rate. And even if there were, the costs of arrangement/booking fees, legal expenses, valuation would more than wipe out any advantage.

    When your fixed rate deal expires in April there will be no penalties whatever to making the overpayments I suggested. Your lenders products also offer daily interest calculations. This means any overpayments you make will be immediately deducted from the capital outstanding and you will benefit straight away by not paying 20 or so years interest on those amounts, and your term can be reduced by years without pain. Of course you can choose to overpay by either more or less than I suggested.

    I'm not sure what you mean by "renewing" your mortgage. The contract you have with Nationwide is for the whole term of the mortgage, so by staying with them, there is nothing to renew. As long as you have kept your side of the contract, there is nothing the lender can do to vary the original agreement. (Thats why they are having to give you Base + 2% - no new borrower will be able to get that today) Your father's circumstances are therefore irrelevant. If by "renewing" you mean taking another short term deal with your lender, you would effectively be ending your present contract and starting a new one with new terms and conditions. Then your father's circumstances could be an issue as the lender would basically re-underwrite the application similar to a new mortgage - and add a load of new costs to it. But you would be foolish to even think of changing your existing contract whilst you are enjoying far better terms than is possible by taking any other deal, with either your existing or a new lender.

    Believe me, you should stay exactly as you are, unless there is some other very compelling reason to change. I suspect that you you just cannot believe your luck at the moment and its making you suspicious of demons that aren' t there!

    Relax and enjoy your good fortune while it lasts. Best wishes.

    • Post Points: 20
  •  Wed, Jan 07 2009, 2:01 AM

    Re: Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    That's very helpful thanks.

    Basically I think (assuming that when it gets to April the interest rate will still be 2% or even lower) that it makes sense to stay on the BMR rate of 4%. As my current mortgage currently on 4.88% and there are still offers for that available, then as soon as interest rates get up to 3% again (thus making the BMR = 5%) then I would be better off switching back to some kind of 2 year deal as it should be a bit cheaper again.

    What I don't get is why anyone in my position would choose to switch to a tracker mortgage with the same lender as Nationwide offer that at 2.49% above the base rate, meaning that the BMR would be considerably better value. They seem to be suggesting this as an option for renewal. Is it because they could suddenly change the BMR not in line with Bank of England rates? I can't see any other advantage to not just going with the BMR.

    In your last paragraph you mention reducing my mortgage term. I need to check conditions but are you essentially saying I should carry on paying what I am, thus essentially overpaying, to try and reduce the length of the mortgage. Am I likely to not get penalised for such overpayments?

    Seems like I should probably go and speak to someone at Nationwide but further advice obviously much appreciated if you get the chance.

    Oh and final question. Is there any reason why Nationwide would not consider renewing my mortgage? I haven't had any problems paying and the mortgage is only a third of the property value but my father is on the mortgage as well and he is now retired so has limited income.

    Thanks

    • Post Points: 20
  •  Wed, Jan 07 2009, 1:17 AM

    Re: Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    You are not missing anything! As an existing client you will enjoy much lower payments than you would by switching lenders or taking another deal from Nationwide. You will not be able to get anything else as good as Base Rate + 2% and even better it will cost you nothing to stay exactly as you are. The only thing to be aware of is that you will be on rate that varies (up or down) with the Bank of England rate, not a fixed rate as you have in the past. Your Early Repayment Charges will expire when your fixed rate ends in April, so you will be free to change only when it suits you at some point in the future when rates have risen again. In the meantime enjoy the contract you are on and may it last forever - but it won't!

    Best wishes

    PS You will never get a better chance to reduce your mortgage term by choosing to continue the same payments as you have been used to. The difference will all be used to pay off capital plus the 20yrs (if thats the term remaining on your mortgage) of interest you would otherwise have paid on it.

    • Post Points: 20
  •  Wed, Jan 07 2009, 12:42 AM

    Worth carrying on with Base Mortgage Rate rather than getting new mortgage?

    Dear all,

    I am very confused with the process of my mortgage renewal. I have a Nationwide 2 year deal fixed at 4.88% which runs out in April this year. At the time this was agreed, the BMR which it would switch to on expiry of the fixed term was much higher. However now this is 4% I believe, ie 2% above base rate, and lower than what I am currently on. Therefore surely it would make sense to not negotiate another 2 year deal (say 4.88% again plus arrangement fee) but just keep paying at the BMR rate until interest rates significantly rise again.

    Is there something I am mssing with this? Is it going to be a problem renegotiating in future once interest rates start rising again or would I be doing the right thing to just carry on with the current deal?

    Also would I be right thinking that this is a bad time to enter into any 2 or 5 year deal, particularly a fixed rate deal? Nationwide don't seem to be offering fixed deals which account for the fact that interest rates are likely to remain very low for the forseeable future and so sticking as close to their BMR as possible seems like the best option.

    Any help much appreciated. I am new to all this and confused. Of course I will approach Nationwide but expect their advice to be biased!

    Thanks

    Gareth

    • Post Points: 35