Reduce mortgage or not?

bingobangobongo

I posted this in the financial section but maybe it should go here:

Hoping some financial wizards can help me with a moneysaving type issue. I possibly will be inheriting a large sum of money (£50,000) and I am not sure what to do with it.

The question is complicated as I am hoping to try and move house in the next year.

My mortgage is £150,000 - but my house is prob worth £140,000 atm due to the downturn in the housing market. I paid £155,000 for the house.

If I can sell my house and buy a new house, I would be looking to pay around £200,000 for the new house (my next move will be a more permament move so would to buy a bigger house etc).

So, should I take the £50,000 off my mortgage and reduce the mortgage to £100,000. I am not in a mortgage contract, it just ran out so I am paying 3.0% BMR interest atm. But when I sell my house (say for £140,000), I would have £40,000 'profit', and a mortagage of <£100,000. But I would then need to borrow more again to get a house for £190,000.

Or should I keep the £50,000 and use it for moving house. If I sold my house for £140,000, this means I could effectively buy a new house for £190,000 and my mortgage would remain unchanged.

If I keep the money in a bank, what should I do with it to try and maximise its return?

I appreciate any help with this, I'm not sure what the best option would be.
Thanks

beecher

You won't be able to port your mortgage if you're on the SVR as far as I know. I also don't think you could port it if you're in negative equity - you'd owe your bank £10,000 from the sale of your house.

Seems to me that your best bet is to overpay your mortgage - I take it there are no penalties while you're on the SVR? Your £40,000 (or whatever you have - remember house prices are still falling) would be the deposit for your next house.

bingobangobongo

Can I not port my mortgage over if I am putting down £50,000 for the house?
So I would be buying say - a £200,000 house and my mortgage would still be £150,000? I would therefore no longer be in negative equity..

beecher

But you would only have £140,000 for the house you sold, not £150,000.

Best to find out if you can port while on the SVR anyway as I really think you can't. Why don't you give them a quick call to find out - ask them if your overpayments are unlimited while on the SVR too. There's no point in debating your options til you know which ones you can actually use.

bingobangobongo

Your right of course - I just rang Nationwide and spoke to a guy who didnt seem to know what he was talking about But he went off to consult others and came back to say that you CAN port over a base rate mortgage.

So theoretically, I wouldnt need to get a new mortgage deal when buying a new house. So does it make sense to just keep to money and use it to put towards a new house, instead of taking it off the mortgage.

If I take it off the mortgage, I will need to borrow more when moving house, and therefore have to get a new deal, with possibly a higher interest rate. But if I keep the money and the same mortgage, then I dont need a new tie in deal.

Am I making sense, as I'm not sure if I am right in my logic!

Thanks

beecher

That's good news Sorry for telling you otherwise. I'm really surprised that you're allowed to do that! He did understand you meant Standard Variable Rate, and wasn't thinking it was a tracker?

I've confused myself with the rest to be honest - I see now that you'd be paying off the £10,000 anyway as you say you'd buy a house at £190,000. Maybe it is an option to pay off that £10,000 just now if you can't get an interest rate of above 3%. I can see the logic in what you're saying though. Hopefully an adviser will come along and make it all make sense

bingobangobongo

Thanks beecher - this all rests on whether the guy at nationwide was indeed correct in what he told me. That I can just keep my BMR mortgage when moving house. I dont see why not since I am not borrowing any more money - I will owe the same. And its good for nationwide as I will owe the mortgage against a house which is no longer in negative equity.

silvercar

Putting aside whether you can port you current mortgage or not, the numbers amount to the same.

keeping the money aside: sell house for 140k & buy new for 200k = 60k increase. Current mortgage =150k so you would need 50k of your savings plus 10k mortgage increase = 160k new mortgage.

paying the inheritance off your mortgage: sell for 140k & buy for 200k = 60k increase. Mortgage now 100k, add 60k to it = 160k new mortgage.

bingobangobongo

Your right silvercar but I should have stated that I would buy a house for £190,000 and not £200,000.

i.e. I would not be borrowing anymore that I currently have. If I need to add more I would do so with savings etc.

So does this change the situation?

Robert_Sterling_3

You are not going to sell your existing house and buy your replacement house overnight.
You think that you have £10,000 negative equity.
When your synchronised exchanges of contract take place time will have elapsed
and you may have more negative equity whilst on the other hand the cost of a £190,000 house may have dropped by an amount that outweighs your further loss of equity.

You will have costs associated with selling your house and costs associated with buying a replacement property.

So assuming that there is no ERC because you are on SVR

Pay £30,000 off your existing mortgage and get rid of considerations of negative equity.

Keep £20,000 handy so that you can move fast if the opportunity arises.

Peelerfart

I would agree with Robert, with the addition of saying, keep your repayments the same.