Mortgage - extension help

natman

Hi there.

I have posted a question some months ago regarding decisions to my mortgage and did not make a decision due to the financial worries etc, but I would really like some advice regarding my prediciment................as i am now ready to act.

I will keep as simple as possible -

I have a Mortgage - 0.75 tracker mortgage above base rate for the duration( took this mortgage out 9 years ago and I am currently happy with the product)
My oustanding Mortgage is - £27,000 - currently paying 3.75% my payments will be about £400. I have reduced the term of my mortgage 5 years ago and only have 6 years left on my mortgage.

Ok...........I have a house, was worth 12 months ago 145k. LETS say for arguments sake its now worth 115k. My partner and I want to move, decision has been made, but we both know that this is not the right time so for the next 12 months or so we want to make sure we are in the best position to move financially.

We have savings - of 27K all in accounts that pay higher interest rates than the mortgage rates.......................
So if I was to theoretically sell today and pay off my mortgage I would have £88,000 from the sale to put down on a deposit and my 27,000 in savings = £115,000( i know theres more costs than this i am just trying to keep it very simple)
Say i am buying a new home for £180,000, so I would need £65,000 mortgage

Heres my thoughts -
1. Freeze the mortgage and just pay the interest on it. This will be around £85.00 a month. save the £315 that would of gone into the mortgage in savings account. I would save in 12 months an extra £3,780.



Reason for doing this - why invest any more money into the house, when
1 - houe prices are going down so i am actually throwing it down drain
2 - my mortgage product is decent so if i need to take out a new mortgage, on a new property at least the 1st £27,000 is on a decent base rate tracker and the other £38,000 would be a new mortgage.

Thought 2 -
Pay mortgage off completley - so no loans, but no savings. but if i was then to get a new property , the mortgae deals may not be as good.

Thought 3 - Keep things as they are, making overpayments on my mortgage and saving around £500 a month.

Sorry for the long story, but i really dot know what to do, also if i have missed an option which may be better.

Any help would be great.................
Thanks:T

silvercar

I'd go with thought 1 for reason 2.

natman

Ok thanks for your comments
...........Anybody got any other thoughts

Shimrod

Is the mortgage you have portable to a new property? If not, then your reason 2 is invalid as you will no longer have that tracker rate. I ask this as earlier you say you would pay the mortgage off earlier in your post.

I'm not quite sure I understand the logic of reason 1. Whether house prices are going up or down, you still owe £27K. If you pay off the capital, this amount goes down. If you save the repayment part, the £27K stays the same but you have the cash difference in the bank. If you can earn more by saving than paying down the capital, then save the money.

My only other thought is whether switching to interest only might indicate to any subsequent lender that you potentially have financial problems? Maybe one of the mortgage brokers can comment on this?

natman

Shimrod wrote: »

Is the mortgage you have portable to a new property? If not, then your reason 2 is invalid as you will no longer have that tracker rate. I ask this as earlier you say you would pay the mortgage off earlier in your post.

I'm not quite sure I understand the logic of reason 1. Whether house prices are going up or down, you still owe £27K. If you pay off the capital, this amount goes down. If you save the repayment part, the £27K stays the same but you have the cash difference in the bank. If you can earn more by saving than paying down the capital, then save the money.

My only other thought is whether switching to interest only might indicate to any subsequent lender that you potentially have financial problems? Maybe one of the mortgage brokers can comment on this?

Umm interesting about the financial problems - not thought about this.
My logic for reason 1 mainly is - the 27k i owe on the house is portable, it would be 27k on a new house, but on the same deal mortgage. Also if I can save more, i may have more tangebile dosh in my savings account when coming to buy a new house.

Would be interesting if any mortgage brokers may know about me swapping to interest only would be a negative relating to my credit score / highlight financial problems...........

Another thing to think about, if i paid my mortgage off, so the 27k, i would own my house outright - but with house prices dropping the 27k i would pay out of my savings into the the house would be worth less so my 27k in savings would be less than I hoped

Thanks again