Options to pay off mortgage over short period?

Rygar

My aim is to be mortgage free as soon as possible. I have no other debts. The value of my property is between £90K to £110K.

Currently have a £37K interest only mortgage with A&L, current tie in comes to an end this April. I also pay £64/month to a Pearl endowment. If I surrender or sell the endowment I'll get approx £10K for it according to Pearl (Its more or less what Ive paid into the policy so far, I assume I would not be taxed on this value if cashing in?). In addition I will have £10K of savings by April and I can afford to save/overpay £1K per month after that. Savings currently in a basic Clydesdale account earning no interest.

I'm thinking what I should do in April is switch to a re-payment mortgage & pay off £20K of capital immediately if my lender will allow this? That will then leave me with a balance of £17K.

Whats the best way to pay off that final £17K? Will lenders even take on a mortgage of £17K? As I see it I have the following options:-

1. Save for about a year until I have all the capital available to pay off in one go. Which mortgage in the mean time? What do I do with my savings in the mean time?

2. Go for a mortgage that allows me to overpay every month with no limits & and has no early repayment penalty. Someone mentioned an HSBC tracker to me that may be suitable. This a good idea? Any others that are better?

3. Pay it off with an unsecured personal loan in April. In which case whats the best deal, again assuming I could overpay or reduce term of the loan with any extra cash.

Regardless of which option I go for, ideally I want as much flexibility as possible that allows me to overpay/pay off quicker OR underpay/pay off slower if my circumstances change. Getting back overpayments if needed would be good as well but I realise there needs to be compromise somewhere.

What would you guys do in this situation?

gizmo111

What will your rate be when the fix ends?
I'd pay off as much as I could then and then overpay on the current mortgage. I can't see you getting a great deal elsewhere when you take into account fees.

getmore4less

Regardless of which option I go for, ideally I want as much flexibility as possible that allows me to overpay/pay off quicker OR underpay/pay off slower if my circumstances change. Getting back overpayments if needed would be good as well but I realise there needs to be compromise somewhere

Ideal candidate for an offset.

If A&L don't have a good deals that meet these criterea then the First direct offset tracker is currently a good option in the offset camp.

Barclays are also an option and these can beset up to hide savings which is good for loss of job and benifits if you would qualify.

What ever you do the fees will be a factor on overall cost which could make staying with A&L the low cost option, interest rate less of an issue if you pay the lot if in under 2 years.

Rygar

I just talked to A&L. Their SVR is now 4.99% and probably still will be in April.

If I switch from them to another lender after my tie in there is still a £295 fee.

They said after my fixed deal comes to an end I can switch to re-payment (£50 fee) then go onto the SVR. I can pay off £20K straight away no problem then overpay as much as I like until the debt is clear. Must admit didnt think it would be as simple as that.

All things considered I guess this would be my best option then?

m_13

I think you will struggle to find a mortage lender who will lend as low as £17k. Most have a lower limit of £30k and Barclays/Woolwich ostensibly lend only above £50k (although they are flexible as our new tracker mortgage is below that).

I think you will also find a problem with overpaying straight away unless you get an offset and I don't know of an offset that will lend £17k. You've also got booking fees to consider. Most lenders are going for around £1k in fees at the moment or fee free if you accept a higher interest rate.

It sounds like staying with A&L is your best bet and then overpaying as much as possible to end the loan early.

Be aware though that having no mortgage and no debt will damage your credit rating. We paid off our mortage in October 2007 and moved into rented accommodation. We had no debt and pay off our credit cards each month. When we tried to get a car loan (because I get a car allowance to pay it each month) we found that most people wouldn't touch us and eventually A&L lent us £5k but on a higher rate of interest. We've made sure we make our payments on it and hey presto when we applied for a new mortgage our credit rating was suddenly very good again!

getmore4less

m_13 wrote: »

I think you will also find a problem with overpaying straight away unless you get an offset and I don't know of an offset that will lend £17k.

Not a problem borrow the minimum and offset the excess immediately.

dimbo61

I think you are right to stay with A & L even on there SVR and pay off the lump sum in april then overpay as much as you can afford over the next 12/18 months.
Fee of £50 to go onto repayment !
Check if you can stay on interest only and overpay like mad and then pay NO fee.
4.99% is cheaper than any loan you can get at the moment GOOD LUCK

Rygar

Thanks for the input everyone.

Not too keen on offset mortgages as I'm led to believe they are usually higher rates for the luxury of overpaying when other mortgages will allow this anyway? Bearing in mind I would need to pay £295 to A&L then an arrangement fee for the new mortgage I don't think I'll go down the route of switching lender now anyway.

How does overpaying on interest only work ...is it then part n part?

Also occurs to me if cash in my endowment I'll no longer have life assurance. I guess I'll need to arrange this separately if its a compulsory requirement for a mortgage?

On the credit rating issue, that's crazy! Why is this? I understand that its more about how profitable you are to a lender than how much of a risk you are but surely someone who is totally debt free is a good customer for high amounts? I've had plenty of debt in the past, only over the last year or so that I've got myself clear. Wouldn't my history of a customer with debt that makes the payments make me a good bet to lenders?

gizmo111

Also occurs to me if cash in my endowment I'll no longer have life assurance. I guess I'll need to arrange this separately if its a compulsory requirement for a mortgage?

I don't know of any mortgage where its compulsory, just advisable depending on you circumstances.

getmore4less

Rygar wrote: »

Thanks for the input everyone.

Not too keen on offset mortgages as I'm led to believe they are usually higher rates for the luxury of overpaying when other mortgages will allow this anyway

This has not been true for some time, the gap narrowed and in some cases there have been offset trackers at better rates than some ordinary trackers

First direct have had some realy good deals and Barclays not far behind.

Fees are a key for your change, exit and setup, but if you want flexablity and drawdown of overpayments then check you can do this if you stick with A&L.

Don't bother with the fee to go repayment if you can overpay without charge.

Do you have life cover through work?
Do you actualy need it not clear what the setup is

Rygar

getmore4less wrote: »

Do you have life cover through work?
Do you actualy need it not clear what the setup is

No I don't have life cover through work. Wasn't sure if it was a compulsory requirement of a mortgage or not. Guess not. I'm a young(ish) single guy so I don't suppose it matters too much, although if I got hit by a bus it would be nice to know my property was going to a family member.