Leave Fixed Rate Early, Switch to Offset Account - FD appears best option?

uzubairu

Anon wrote: »

I checked with Nationwide, apparently you can vary your payment term shorter or longer as often as you want, without fee (something to do with FSA/government rules). If that is the case, it makes sense to reduce the term down to take into account my regular overpayment (therefore 10 years would bring the monthly payment up to what I am paying now with regular payment and overpayment combined), plus would still have flexibility for another £500 per month. The penalty is a constant 3% for the first 5 years.

What do people think of my scenario above - if you can vary your term as often as you want, and with no limit, could you reduce the term to 1 month to get out without the redemption penalty (asuming you could get the money!)? Also if you did suddenly come in to some money and were able to pay off the mortgage within the 5 year fix period, is there any scenario where you would not have to pay the early redemption penalty?

Anon

I don't know about reducing the term to 1 month, but we have applied to reduce our term 3 times in the last 5 months so that we can pay off more of the mortgage (10Yr Fix @ 4.79%), because the £500 limit was restricting us.

We're with Nationwide too.
We initially paid £646 each month and overpayed by £500.
We are now paying £891 plus the £500 overpayment.

We'll be reviewing the household budgets in a few months time and will be looking to reduce the term again and pay £1000 plus the £500 overpayment.

Anon

uzubairu wrote: »

I don't know about reducing the term to 1 month, but we have applied to reduce our term 3 times in the last 5 months so that we can pay off more of the mortgage (10Yr Fix @ 4.79%), because the £500 limit was restricting us.

We're with Nationwide too.
We initially paid £646 each month and overpayed by £500.
We are now paying £891 plus the £500 overpayment.

We'll be reviewing the household budgets in a few months time and will be looking to reduce the term again and pay £1000 plus the £500 overpayment.

It is interesting, 3 times in 5 months means that they clearly don't have an issue with the changes (as their CS said, it is apparently FSA/government rules).

As I mentioned in another thread, RBS research is indicating that this 1% rate will be here until the end of 2010 (though as I observe, they didn't forecast being 70% owned by UK Government, therefore all forecasts have a margin of error ...)

As a result, and considering the limit on overpayments, in my case it may be best to take the hit and switch as according to the online mortgage calculators, with overpaying we could have paid off much of the mortgage by the end of the original 5 year fix period, with current payment levels/income etc (notwithstanding mortgage rates rising). Someone calculated on another thread that switching to one of these trackers, or rather an equivalent rate fixed for the next 2 years, followed by three years even at 7%, you would still be in front. Looks like time to get out the spreadsheet again and seriously number crunch.

Many thanks

Anon

Anon

I appreciate your views on this - having done the sums, over the first year, it would appear to be around no loss/no gain as the redemption penalty, plus the regular monthly payments more or less would be equal to what we are paying now anyway. However, with some reasonable savings to offset, it could save/recoup over a third of the redemption.

A further idea would be a variation on the above scenario (all depending on how quickly they could/would change the mortgage term) - change the term so that the monthly payment that month would be equivalent to the savings pot, change it back to a more normal monthly payment, then switch (thus reducing the redemption penalty so that we did not get charged a redemption on money that we are currently in a position to pay and would in future be offset, but we would like access to in future).

Many thanks

Anon

Anon

Appears that I am on a discussion board with myself.

Talking to one of their CS yesterday in store, the minimum term that you can set is the remaining period of the fix term, so four years remaining (you cannot set it lower than that, so it appears that they thought of that loophole before anyone used it :mad: ). So, it appears that there is no way around paying the redemption.

If that is the case, crunching the numbers, over the 4 years remaining of the fix I would be paying interest more than double what the redemption penalty is on money that we currently have sitting in a savings account, therefore although we are talking at £4k costs to leave the fixed rate, we could (mentally!) recover that simply on interest saved from the savings (without taking into account the potential saving if the rates remain low on the rest of the mortgage, plus if an offset we would still have access to the money.

Many thanks

Anon

Anon

I have a few questions on offsetting, if anyone can help please, as I still wrestle with the pros and cons of bailing out early and taking the ERC and remortgage fees hit.

I am possibly a bit niaive, but if remortgaging can you only request the amount still owed to the original mortgage company or could we ask for, say, £20K more than the remaining mortgage from the new offset (which would still result in less than 60% LTV), which would then pay off the remaining mortgage and leave £20K available as credit - which we could then leave in the offset until/if required (as unless I have misunderstood, we would only get charged interest on it if we physically withdraw it, and the fee is the same no matter how much we request, so makes sense to think about it now?). I see on their website that they have offset loans alongside mortgages, but as I don't have any real need for a loan at the moment, would this be necessary to achieve the above?

Also, although we are tempted to go for a shortish term (say 10 years) and project that we could pay it off in that time, is there any benefit in setting the mortgage as a short term, if we are offsetting?

In a nutshell, would it make sense to go for the highest mortgage that they would allow (but not using a sizeable % of it - or isn't this allowed?), for the longest period (but effectively running at a high % offset for the majority) so that in future, should we need it, we would have a ready line of credit for any potential large purchases (and assuming it is still a good deal, it would then avoid some of the fees for setting up new credit in future)?

If we ended up with 100% offset, would FD close the mortgage or is there no risk of that?

If we went over 100% offset with FD, do you get credit interest (or I think I have read somewhere on here that you can ask for a linked account to be unlinked so that it earns interest in its own right).

Finally, on a number of online services it shows that the legal fees are all paid by First Direct, but on the FD website it shows:

if you are re-mortgaging a property in England or Wales
In addition to the arrangement fee you will need to pay for a professional valuation. However, first direct will pay for any enquiry fees to your previous lender, money transmission fees and Land Registry fees.

Are there more legal fees involved in a remortgage beyond those covered by FD (again, haven't done it before, only gone for a new mortgage, so not sure if I am missing something).

Many thanks

Anon

willmatt

Hi Anon,

Your basic idea to borrow more than you need and then save the extra cash in one of the offset accounts is sound as a method to have instant access to cash which you can borrow at mortgage rates. How you achieve this if you want to borrow more than the cost of paying off your existing mortgage lender, I'm not sure in actual practical terms - that would be time for a call to FD, I suggest.

It does seem perfectly feasable that you can do this using the loan facilty which they presumably pay into one of your offset accounts. Normally when remortgaging you apply for a loan of £X and then you actually get a loan for £Y where £Y equals the actual final cost of redeeming your old mortgage plus any arrangement fees for the new lender. Throughout the application everythign is based on £X (plus fees) then the calculation of Y just happens, you don't have to do anything.

If you definitely want access to that credit then what you're suggesting seems fine to me. You can offset up to 100%, you'll have to ask FD if you can go over 100% temporarily and still keep the mortgage - you definitely will not earn any credit interest even if this does occur, the T&C are clear on this so you should save up the extra in a non linked account to earn credit interest.

There are no early redemtpion penalties on this account so (if you're going for the standard interest only method) the term is, as you say, a bit of a token statement, you can say 15 years even if you think you'll pay it off in 5.

If (like me) you get a written illustration from FD it will show you that the fees are; the valuation (approx £200) paid by credit card and £799 arrangement fee added to the value of the loan. There are no other compulsory charges and you do not necessarily have to use your own solicitor for anything, so your assumption on the costs is correct.

kacee

With regards to borrowing more than you need to pay back your existing lender, we have recently done just that with First Direct. We owed £25000, but required £75000 extra, so the £100000 was sent to our Lawyer and he paid the £25000 to the original lender and £75000 was then sent back to our FD linked account that is still sitting there until we require it.

What you will have to be aware is that FD quote you on an interest only basis, but you can ask them what the payments would need to be to pay off in X years, then make this payment. So your payments every month will be A(the interest) + B(the repayment amount for the full mortgage) - the interest from the offset linked accounts.

Hope this is clear

Anon

Thank you for responding - on another thread someone mentioned that you could have a reduced £99 survey (basically an external only or something like that). As we only bought a year ago, this would probably suit our needs as unlikely that anything major has changed?

What you will have to be aware is that FD quote you on an interest only basis, but you can ask them what the payments would need to be to pay off in X years, then make this payment. So your payments every month will be A(the interest) + B(the repayment amount for the full mortgage) - the interest from the offset linked accounts.

Is there any benefit of paying capital off, as opposed to just leaving it in the offset, as I understand that even if you did, you could still borrow it back if required?

Many thanks

Anon

anselld

Anon wrote: »

Thank you for responding - on another thread someone mentioned that you could have a reduced £99 survey (basically an external only or something like that). As we only bought a year ago, this would probably suit our needs as unlikely that anything major has changed?

Drive-by valuation. They just look at the property from the outside, measure the outside etc. Ideal for remortgage purposes.

Anon wrote: »

Is there any benefit of paying capital off, as opposed to just leaving it in the offset, as I understand that even if you did, you could still borrow it back if required?

No difference. Once you have your mortgage account you can transfer between it and linked current account in either direction at will. Interest calculated on the net debt daily.


They are also very efficient. Customer service A*

kazd

We had the £99 driveby viewing, just signing all the paperwork tonight. We are about 14months into a 5 year fix at 5.89% and our redemption is £4200. I know its a gamble, the base rate will have to rise to 4% before it becomes unviable for us. Also I am keeping the payments the same as we currently pay and shaving 4 years off our mortgage term. In addition we have taken extra borrowing which we are going to use to pay a lump off another property that is on at a higher rate, so there is a saving there as well.

I spoke to FD tonight and I was told with regards the extra, its basically a line of credit that you can transfer over to your current account and use as you need.