Almost Mortgage free, then darn it I buy a house - HELP

natman

Hi There, hopefully a bit of help to push me into the right direction here.

Ok here goes - Long story short.

I am living in a house that is currently being involved with a builder to part exchage and buy a new property( basically on 27th Feb I will be in the new house)

My current oustanding Mortgage is £25,120 and I had just collated £30,000 so I had been contemplating for 6 months paying the mortgage off etc.............
But and it does not mater about the whys and what nots, but I am moving and will be adding to my mortgage of £25,120 a new amount of £71,400:eek:
So I will have a new mortgage amount of around £96,500 over 20 years. I am 32 years old and married. Both My wife and I work full time and have no kiddies.

I still have £25,000 in the bank
My new house was valued at £219,500 and I put down a deposit of £123,000 from the sale of my existing house and 3k from savings.

Any how my thoughts -
My Mortgage is broken up into two products
1 - existing £25,120 on base rate tracker currently at 1.75% has been ported across
2 - New funds of £71,400 on Fix for 3 years on 4.99%

I can save around about £450 a month, with my new mortgage amount, But my saving rates have shot right down -
I still ahve a couple of fix term bonds at around 6.5% of £10,000, but the rest of my savings is earning around 3%.................

So the quandry -
I can overpay as much as I like on part 1 of the mortgage.
I can pay £499 a month over my monthly payment on part 2 of the mortgage.

Part 1 is only 1.75% and to be honest I dont really want to overpay anything on this at present
part 2 is 4.99% and I would like to get stuck into this -

What would people do - I was thinking of just putting the money I can save - i.e £450 a month straight off part two of the mortgage every month for a while.
I could pay a lump sum of part 1 - but I feel that interest rate is very low and am happy paying the small amount of interest.

I n addition, I could of asked for a less mortgage and placed more of my savings down, as an initial deposit, but to be honest I am reluctant to do this at present with the economy and worries, so having a nest egg , feels more secure......

Any thoughts out there?>

cte1111

I would keep 6 months outgoings in savings, and put the rest down on the house. If you then have a spare £450 per month, add it to your savings, if you feel that having more savings would make you feel secure. Think I would pay the £450 off the higher rate mortgage, once I had a few thousand more in savings.

Just a personal opinion.

dimbo61

Overpay by the 499 allowed even if that means using 49 of your savings each month as no point paying 4.99% any longer than you need to.
This is on part 2 of mortgage wait until the Base rate tracker finishes and then consider paying off that part if its more expensive than savings rate you are getting on your savings.
Put £250 a month into Barclays regular saver 6% before tax.

natman

Thanks fo rthe comments guys, has anyone else got any thoughts or ideas??

dimbo61

Fill a cash ISA for yourself and OH before april4 and same again after the 5th april as better off getting 3/3.5% TAX FREE from your savings.
Try and keep the £25k in savings and like I said pay off the tracker part if its costing you more than you are earning from your savings.
Overpaying the 4.99% fixed by £499 a month is £6k a year
You could be mortgage free in 10 years !
Maybe even sooner if you pay off the tracker part and reduce the term on the other part of the mortgage to take into account the extra money you could then pay each month.
Consider offset when your fixed rate ends
GOOD LUCK

getmore4less

If the £25k is on top of the £10k in bonds I would just use that to borrow less at 4.99% and rebuild a savings pot/ISA etc from the surplus income you will have. not many places where your saving will get more than 4.99 after tax.

You may want to put a few £k aside, new builds usualy need spending on.

I would also try and switch the tracker to interest only and overpay the fix.

Having a buffer for loss of income will depend on how save you think your jobs are and how you would cope on 1 income or no incomes(do you both work at the same place?).

natman

My partner and I have filed our cash ISA's for 2008-2009 and only earning a crappy 2.8% at present.

I agree that keeping hold of the base rate tracker is a good move and trying to get stuck into the fixed over the next three years is also a sound piece of advice. Someone advised me not to pay interest only as it may damage credit rating. so i moved the term of the tracker from 5 years, to 25 years, on the new house, and have 21 years on the fix at 4.99%

My savings of 25k includes the fix term bonds - so the 25k is the grand total of my savings, plus i have £4k floating to spend on new house if needed so I do have 29k , but 4k is the money i think i will need once i move in.

I really like the idea of offset, but with me having 25k oustanding on part one of my mortgage at 1.75% this is a decent rate to have a loan.

I suppose i would like to be mortgage free as soon as poss - but also realise i need some savings particulary in the present climate.
Just trying to do the right thing.
My partner and i feel ok, in employment, we dont work at the same place, but inthe same setor - eductaion.
I am at a high school the missus at a college.

Trying_to_be_good

Just a quick thought - why are you taking the fixed rate over such a long term? You don't normally need both 'parts' of the mortgage to end at the same time. You could reduce the term of the fixed rate part and be mortgage-free much sooner, and not have to worry about the maximum overpayment allowed without penalty. This would limit your flexibility in the future to reduce payments, but with £25k savings, I imagine you'd be able to keep up payments for a long while.

ailuro2

What interest rate are you getting after tax on your savings?

If it's higher than the mortgage rate, keep it in savings - if it's lower, pay it off the higher interest mortgage.

Plenty time later to build up ISAs, but with debt of nearly 00K now is not the time.imho of course.

fiddling_flower_petals

I agree that overpaying the maximum of £499 on the fixed mortgage, as you state the tracker mortgage is very cheap at the moment. However what you haven't meantioned is, if either mortgage is fully flexible and with a draw back facility. If you can access your overpayments, might change how you deal with £25K savings. Also when does your tracker deal finish?

However I thought you'd have been an ideal candidate for an ofset mortgage. Presumable you ruled this out for your own personal reasons

Kaz2904

TBH I would have used at least 20K from your savings to ensure that I was paying less interest. Should either one of you lose your jobs then the savings will go against any benefit you could claim. You would also be paying out more.
With 20K less at 4.99% your monthly payments would be lower and more easily affordable in event of job loss but you would still have a 5K buffer.
Although as I have financial OCD, I would probably want a flat 50K new debt!
(It's a nice round number!).
Is there any way that you could get an offset that would include your ISA? Probably not in this day and age due to interest rates on new accounts and set up fees.
What the guys have said about reducing the term is also a good idea, how about reducing the term until it absorbs £200 extra per month. The thinking behind this is that you said you can overpay by £450 per month but if you were to have a child your overpayment power may be significantly reduced and £200 per month would be easier to manage than the whole £450.

Only you know what you will feel entirely comfortable with and it's all about getting the correct balance for you as a couple. What does your wife think?
I suspect things are getting a little close to the line to be thinking about changing things with completion 5 days away.
Try entering your figures into an overpayment calculator- I like www.whatsthecost.com but there are many around.

Whatever you do, it sounds as though you will be clear way before your projected end dates so congratulations in that respect! Good luck with whatever you decide anyway!