question 3

• question 3 - compare the three options
• intro question 3: outstanding mortgage of £150,000 over 15 years, gross income of £130,000, no debts or savings, fixed rate period just finished and they are researching different options, they have calculated they can afford £400 extra per month from their current budget to put towards this 15 year plan, they have both banked with barclays for many years and their mortgage has now reverted to a standard variable rate of 7.74% with monthly repayments of £1411, they don't know whether to wait until variable rate drops or swap to fixed
• p1 question 3: lloyds is fixed for 10 years which is a long time, kensington is fixed for the entire term (15 years) assumuing they made no overpayments, key advantage of a fixed mortgage is having certainty of how much repayments will be every month as well as protection against high interest rates but has the risk of being locked in at a high rate if the interest rate drops unless they are willing to pay an early repayment charge to ditch the fixed mortgage and swap to a new one like the variable one they currently have which could be cheaper over the long term
• p2 question 3: they currently have a high interest rate at 7.74% so they should get rid as soon as possible, comparing it to lloyds at 4.98%, kensington at 5.79%, barclays monthly payments costs £232 and £162 more than the other two options per month, they would be no better off even if the interest rate fell by 2% so if they did want to stick with a variable rate it would make sense to shop around for the best deals and consider a discounted mortgage
• p3 question 3: kensington charges a fee of £108 which the others don't but this is not significant in terms of total costs, lloyds offer £250 cashback on completion but this again isn't a significant benefit but if they did switch to lloyds they would have to swap current account providers, all three offer same overpayments of up to 10% with no charge
• conclusion question 3: lloyds because of the lower interest rate saving ben and lucy £70 per month compared to kensington which works out at £840 more per year and £8400 more after 10 years, which is a significant amount, so even if the interest rate had gone up in 10 years time, their future remortgage deal should still be cheaper over the final 5 years compared to fixing for the entire 15 years, strongly advise them to switch away from the current svr with barclays which is very expensive but if they do want an svr there should be lots more attractive deals on the market