Paying off a chunk when taking out new product?

SuzieMum

I wonder if anyone can please help me? We have come to the end of a 5yr fixed rate with Britannia and definitely want to fix again for the security - plus their SVR is appaling! Whilst they have some attractive fixed rates I think we will go for it. Considering savings are not earning us anything, we would like to pay off approx £5k when taking out a new product. Is it worth it/allowed? Would it bring down monthly repayments or is it better off in savings?
Many thanks.

Editing to say we are borrowing £170k on a property worth £250k

samnorris2

Suzie,
If you can afford to pay of the £5k into the mortgage then go for it. It's far better there that in any savings account just now. That's what I'm planning on doing now when I switch.

The alternative you could look at is a fixed offset mortgage. Then you can hold the savings (your £5k) in an account which offsets against your mortgage balance so you pay interest only on the capital minus your savings. Then you still have access to the £5k if you need it.

In the current climate you're certainly better off reducing debt (or using it to offset debt by means of an offset mortgage) than having it in a savings account.

First direct have a good offset range.

Sam

SuzieMum

Oh blimey, thats just something else to learn about and get my head around! Sounds like a good idea though and I just saw that one in the best mortgages list in the FT. Hmmmm, will ponder. Thank you!
Also, in that case we could up that £5k to rather a lot more if we can access it in an emergency. Wonderful!

ukclarkkent

hiya all.

i've got 18k in the bank and my fixed ends in a few weeks. i've got exactly the same situation on a 93500 mortgage with perhaps 90% ltv. just wondering what to do with it - offset, pay lump sum, buy a honda civic!!!

Ex_Gas_Guzzler

Weve just fixed for 5 years at a lower rate than the fixed weve been on for 2 years and paid a few grand off at the same time.
Because the rate weve fixed at is lower weve also dropped the morg from 21years to 15 years at the same time to pay more off p/m.:j

SuzieMum

Great one gasguzzler, we might end up doing that as currently we could get a smidgen below what we paid for the last 5yrs and even that would feel like I have got a good deal!!

We rang First Direct and they said they have a week call back list so we are going to call back at a "quiet time", their offset rates are fantastic and I really like the idea, but I have a few questions about tha rate increasing, they seem to be fixed for 2yrs, I worry about that as wanted more. Need to do more research but overall sounds great.

snarffie

SuzieMum wrote: »

Great one gasguzzler, we might end up doing that as currently we could get a smidgen below what we paid for the last 5yrs and even that would feel like I have got a good deal!!

I used to do this everytime I remortgaged (reduced the term by a few years), but last time I decided to do the opposite and INCREASE the term to what it was when I originally bought the house.

Why did I do this? I wanted the lowest monthly payment possible so that the financial effect of any catastrophic events (lost job/illness) that contrive to reduce our income would be minimsed, and I could continue to pay the mortgage.

The key is to then overpay by the amount that you saved by increasing the term. You're effectively giving yourself a more flexible mortgage.

You just need to make sure your new mortgage allows for the overpayments you will be making!

SuzieMum

Thats very very wise and good thinking batman. I like your thinking, will ponder some more.

Britannia raised their fixed rates in the last few days (within the last 7 days anyway) so pretty gutted we missed a couple of good ones so will be shopping around now. Boooring.

samnorris2

Here's my plan...

spoke to Nationwide today about their 4.59% 3 year fixed £995 fee. I'm currently with them and my 2 year fix runs out in August. I'm on 6.08% just now. Will be glad to cut the rate... also with that I'll be cutting down the full term from 21 years to 15 years. This keeps our rate about the same as it is just now.

Here are a couple of good points from the Nationwide offer I liked...

• Can overpay £500 a month. Although most other mortgages offer 10% which would allow me to overpay more, it is really only benificial while my mortgage is over £50,000 and although it is (£92000) I am not able to pay much more... the advantage though is that i can carry on the £6500 overpayments I've made as a reserve in case I need a payment break (that's about 10 months reserve) in the future.
• Payment holidays available after I've held the mortgage for a year and the last 2 years I've held with them count
• It's possible to get a consent to let (conditions apply of course) but they don't charge any fee but you need to change to buy-to-let rates when the term runs out.
• Able to increase or reduce the term of the mortgage anytime by calling them.. I didn't know you could do this until Financial Bliss on another thread said you could... so as you overpay and your monthly payments come down you naturally pay off less of your mortgage so every 6 months I plan to reduce the term if only by a year each time to reset my monthly payments at what I want to pay.

I'll be glad once I've got this fixed for another 3 years... I've been analysing mortgage offers to the bone... Lock it in, get a Guinness, chill out and relax. Next month Insurance!!!

jrs101

snarffie wrote: »

I used to do this everytime I remortgaged (reduced the term by a few years), but last time I decided to do the opposite and INCREASE the term to what it was when I originally bought the house.

Why did I do this? I wanted the lowest monthly payment possible so that the financial effect of any catastrophic events (lost job/illness) that contrive to reduce our income would be minimsed, and I could continue to pay the mortgage.

The key is to then overpay by the amount that you saved by increasing the term. You're effectively giving yourself a more flexible mortgage.

You just need to make sure your new mortgage allows for the overpayments you will be making!

Errrrmm sounds like a great idea to me.

Are lenders generally ok with this?

lazysaver_2

I have done this as well. I'd rather have a lower fixed amount and choose the level of overpayment I want to make rather than committing to a higher monthly outgoing that can be a struggle to reach.

It does also depend how old you are - lenders like a mortgage to finish by the time you are 60 in my experience.