Saturday 13 January 2018

#76 Worried about... the future interest rate

Currently our mortgage is a giant £363,298, and £1,258 per month.

This is on a fixed 2.2% for another 4 years, until March 2022.

There is a risk that if the interest rate goes up it can have a dramatic impact upon how much our monthly repayments will be.

Using Martins Money Supermarket calculator I've worked out what our monthly repayments would be if we saw different interest rates upto 5%.It does not make for great reading.


2.2% (current)2.50%3%3.50%4%4.50%5%
Monthly repayment if interest rate changes...$1,261$1,313$1,400$1,492$1,585$1,682$1,784
how much more per month than nown/a$52$139$231$324$421$523

So even the best rate we're able to get in 4 years time is only just over 2% higher than now, at 4.5%, we'll be having to pay an extra £421 per month!!

Given this I think we're going to really need to prioritise the mortgage overpayments and set some pretty stretch targets.

I'm going to set an aspirational aim of paying off £30k by the time the fix ends. 

This would have the below affect on possible scenarios...


2.2% (current)2.50%3%3.50%4%4.50%5%
Monthly repayment if interest rate changes...$1,139$1,186$1,265$1,348$1,432$1,519$1,611
how much more per month than now-$122-$75$4$87$171$258$350

This would improve the outlook quite alot.

But it's a lot of money to pay off in 4 years given we're only targeting £600 over the course of this year!

What will we have to do to hit that £30k?

Frankly it's only going to be possible if I get regular bonuses in 2019, 2020 and 2021 and if we put those bonuses into the mortgage.

The bonus for 2018 is going to be put-aside (assuming it is received) to pay for the new car we need.

Once the car is paid off I'll set up a direct debit to start paying little bits off the mortgage and keep nibbling away at it.

Right now it feels like an insurmountable mountain but then again so did the £25k in debt we were carrying 2 years ago.

The new journey begins here.


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7 comments:

  1. weenie21 January 2018 at 05:11

    As you say, Brian, a mountain of a goal but if you put your mind and resources to it, it can be achieved, like the debt you paid off.

    With so many years of low interest rates, even a small increase will make a big negative impact so you are right to be checking the possible scenarios so you are prepared and not shocked like many oblivious houseowners will be.

    The good news I guess is that it's not going to suddenly jump and hit the dizzy heights of the 90s, which was when I bought my first house and my mortgage interest rate was 9%! Of course, my mortgage wasn't as big as yours but still, it was pretty much the norm back then.

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    1. Brian Roper29 January 2018 at 02:29

      Thanks Weenie, yeah all mountains seem giant from the bottom I'm sure. I'm currently being torn in two between repaying this and planting seeds for future growth, which is pretty much the focus of my next blog so let's see where the head and heart end up pointing.

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  2. Unknown26 January 2018 at 15:11

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  3. Unknown26 January 2018 at 15:16

    This comment has been removed by the author.

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  4. Unknown26 January 2018 at 15:17

    I think you're ahead of the game by planning ahead like this. As Weenie alludes to, I think you should consider planning for even higher interest rates. Although it may seem near impossible for rates to go into double digits in the current climate, you just don't know. Just look at what has gone on over the last 12 to 24 months which has caught everyone by surprise! Planning for the worst will leave you in a much better position.

    My wife and I have been aggressively paying off our mortgage. We know that this is not the financially optimum way to do things given the low interest rate climate. However, the positive psychological benefit of not having the carry around such a big debt is priceless.

    PS. I should learn not to respond to posts late in the evening. Had to delete the last two due to typos! There might still be some in this one :)

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  5. Brian Roper29 January 2018 at 02:55

    Thanks Cashflow Cop. I couldn't find any typos! I'm more into content than grammar as I'm sure you may have noticed.

    It's certainly best to plan, rather than carry on an hope all will work out just fine. It's interesting that you've taken the route to pay down your mortgage, but I also see you've already got some properties and other investments in parallel. Perhaps that makes it easier to prioritize paying off the mortgage?

    My dad was a policeman and mum and stepdad are in the RAF, so a similar family set-up to yourself!

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    1. Unknown29 January 2018 at 11:50

      Hi Brian. Yeah, those other properties definately help to pay down the mortgages. However, before I had those other properties, it was the lodgers who helped make me see the potential property can be to boost my income (buy and hold rather than the riskier flipping stuff you see on telly). I started putting all the income I received from my lodgers into my mortgage overpayment. Then when it came to remortgaging onto a new fixed deal, I had a conversation with the bank and asked out of interest, what the repayments would be if say I reduced the term by 5 years. Turns out it was still affordable. The best part was the amount of interest I was paying drastically reduced compared to keeping the term the same and overpaying monthly. From then on, everytime I remortgaged I reduced the term even more and no I am down to the last three years. It's very slow to start with, but after a certain point it gets very exiciting seeing your mortgage balance and things just start to snowball. You should consider having a similar conversation with your bank the next time you remortgage.

      Wow, what a coincidence for your family to also be in the police and RAF. I'm not sure if I mentioned specifically on my blog, but my wife is also in the RAF!

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