What I can do to offset a bad fixed-rate mortgage?
My mortgage came up for renewal right at the time in 2009 when UK interest rates hit rock bottom. This was unprecidented, and most financial advice was to take out a fixed-rate mortgage. So I perhaps went overboard and got one for ten years.
Five years on, interest rates haven't moved and I'm losing money on it to the tune of £100 a month. Obviously, this is ongoing: so that decision has cost me about £5000 in real terms so far. It'll come to a lot more by the end of the mortgage, unless interest rates rise.
Being fixed rate, it's been designed so you can't get out early. If I decide to end the mortage, it'll cost me £1,000 per year of the mortgage remaining - which is roughly what I'm losing anyway, so that seems a bad idea.
I can overpay by up to £500 per month. However, doing this doesn't help pay down the mortgage at all: the total is just added up and will cause the mortgage to end early, by a period dependent on the overpayment total.
This seems to me to be a very bad idea because hoping interest rates rise over the next five years is the only hope I have of making good on some of the losses that I've made.
Is this sensible thinking? If so, is there anything at all I can do to try and ameliorate the financial pain this product is causing me?
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Fixed-rate mortgage is supposed to give you security. You are not going to get the best possible rate, but it is safe and predictable. Your argument is the same as complaining that you are paying for home insurance and your home hasn't burnt down.
Switching to a variable rate mortgage right now seems a bad idea, because there is some expectations that rates are going up. If you can overpay, that is probably what you should do unless you can invest with better return after tax than your mortgage interest. It doesn't just shorten the time of your mortgage; every time you overpay £500 your mortgage principal is down by £500, and you pay interest on £500 less.
And if the interest rate goes up over the next five years as you seem to hope, that just means you will pay higher interest when your mortgage needs renewing.
You can't hope to always make the optimal decision. You made a decision with very low risk. As with any decision, you don't know what's in the future; a decision that is low risk if the risk could lead to fatal results is not unwise. You could have picked a variable rate mortgage and could be paying twice as much interest today.
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