Newbie help 29 January 2009 at 10:45AM in Mortgage-free wannabe 8 replies 675 views

Little_Miss_Penny_Less

Hi everyone,

I'm currently worrying about our remortgage (not coming up til September, but it pays to be prepared!) and particularly that we are still at abour 90% LTV and I think we will struggle to get a good deal/rate.

I have approx £6000 in ISA savings and while it feels nice to have a safety net of savings I have been wondering if I would be better off overpaying the mortgage each month (we can overpay £500 a month) or saving it to use as capital when we remortgage.

The interest rate on the mortgage is 5.49%, balance approx £153k, and I have tried using the mortgage overpayment calculators to see how much difference overpaying would make, but they all seem to calculate for the term of the mortgage rather than a small term of overpayments (i.e. to use up my £6k at £500 pcm, so by september I will have overpaid £4500).

Can anyone advise what a difference this can make, or how I can work this out? I'm guessing that it's going to be a more significant saving in interest than the interest I am making on the ISA each month (approx £20!).

Thanks in advance!

Little_Miss_Penny_Less

Oh, and if I do want to make an overpayment, how do I do it?

POSSETTE

check if you can make an overpayment in your contract first.I looked at mine and minimum is £250 in a payment each month,so i cant even up mine by £50 a month. you could be ok with £500 a month tho. But thinking about it,isnt it better to pay of the £6k in one go now,because then you are not paying interest on the 6k for the next 8 months??

Little_Miss_Penny_Less

I know we can overpay by up to £500 a month with no penalty. I don't know if we can pay off a lump sum, I'm doubting it but will check the contract later today.

When we come to remortgage, can we use additional savings in a lump sum to pay off more and reduce the LTV?

Welshlassie

Check the T&Cs of the mortgage. Before you start to OP you are best having an emergency fund in place 3-6-9 months worth of income.

You would be able to lump off money at the end of the mortgage before the remortage to bring down your LTV. You may find that if you can't get a "good" deal when your fixed rate ends going onto your lenders SVR would actually save you money and not cost you anything unlike interest rates have gone back up by then.

Your best bet would be to work out if you are able to OP anything from your budget leaving your savings as they are and start to bring down you mortgage that way.

Little_Miss_Penny_Less

Ok, I will have to sit down tonight and really work out a budget and think this through thoroughly. I was driving to work this morning pondering how best to utilise my money.

I'm very worried about the remortgage. If we can't manage to reduce the LTV, or worse, house prices fall to drop us into negative equity, what happens? We're not very experienced with mortgages, have never remortgaged before, and I am panicing thinking that perhaps we won't be able to get a new mortgage.

If we can't move onto another deal, do we just remain on our current lenders standard rate? As long as we can continue to meet our repayments they can't tell us to sell the house and pay them back can they?

Welshlassie

Little_Miss_Penny_Less wrote: »

Ok, I will have to sit down tonight and really work out a budget and think this through thoroughly. I was driving to work this morning pondering how best to utilise my money.

I'm very worried about the remortgage. If we can't manage to reduce the LTV, or worse, house prices fall to drop us into negative equity, what happens? We're not very experienced with mortgages, have never remortgaged before, and I am panicing thinking that perhaps we won't be able to get a new mortgage.

If we can't move onto another deal, do we just remain on our current lenders standard rate? As long as we can continue to meet our repayments they can't tell us to sell the house and pay them back can they?

Check your KFI it will probably say that when you come to the end of your current deal you will move onto the SVR, which you can check what your lenders is now. Most lenders are around the 4% mark presently, so you would actually end up paying less monthly that you currently are.

As long as you are paying your mortgage each month they won't depend repayment.

Have a look at Martins budgeting article this will guide you through working out how much extra you have to throw at the mortgage, (if any).

stustu92

We are in a similar position to little miss, the house prices falling have meant that our LTV is above 90% - our current deal ends Jan '10.

We are currently paying off as much as possible every month to try and lower the LTV, but with house prices falling still its like trying to fill a bucket with water when its got a hole in it!

The best case scenario i can think of between now and Jan '10 is that interest rates stay low, and house prices stop falling in value. We'll end up on SVR next Jan with a decent amount of capital paid, still overpaying as much as possible until we manage to improve the LTV.

Not very likely at all.

The worst case scenario i can think of between now and Jan '10 is that interest rates rise and house prices show no sign of stabilising. All the overpayments we'll have made won't have made any worthwhile difference to the LTV and we may even be in Neg Equity. Then we'll still end up on SVR but it'll be a lot higher than the tracker we have, and overpayments will have to get smaller or stop overpaying.

Hope very much its not as bad as this.

Fingers crossed...

financialbliss

Little_Miss_Penny_Less wrote: »

Can anyone advise what a difference this can make, or how I can work this out? I'm guessing that it's going to be a more significant saving in interest than the interest I am making on the ISA each month (approx £20!).

Thanks in advance!

Hi Little Miss Penny Less,

In my diary, I've a spreadsheet that summarises the mortage at one row per month. Have a look here to see if you can make sense of that:

http://forums.moneysavingexpert.com/showpost.html?p=14965035&postcount=534

and a visual representation:

http://forums.moneysavingexpert.com/showpost.html?p=14966029&postcount=536

Try with and without overpayments to see the difference it makes. Hope that's of use.

FB.