Can anyone help?

$17mma

I posted this on the other board and have had no response so figured i posted on wrong board

Mortgage left £55,545.12
Rate recently changed to 7.11%:eek:
Tied in until 3/3/08
Interest only
Allowed to make over payments of 5k per year without penalty
Penalty for overpayment over 5k is 6% of the over payment
Penalty for clearing early 6% of balance

Currently have £25k in savings and can make overpayments of £500 per month

Please advise on the best way to quickly clear this mortgage. Or thebest strategy to move.

Much appreciated

canny_yorkshireman_2

so a switch to another mortgage word incur a 3k charge blimy what a rip off you would not recover that kind of penalty for a long time so would be best to overpay the maximum ammount then when the period is up with your kind of savings a offset would be the smartest option to switch to
hth

$17mma

canny_yorkshireman wrote:

so a switch to another mortgage word incur a 3k charge blimy what a rip off you would not recover that kind of penalty for a long time so would be best to overpay the maximum ammount then when the period is up with your kind of savings a offset would be the smartest option to switch to
hth

Thank you Yorkshiremen :A

I thought so too but was not sure just needed confirmation. Will over pay the 5k until i can move.

Ian_W

As far as I can see it doesn't make sense financially to move your mortgage until after your tie-in finishes UNLESS when you re-mortgage your use your £25K savings to sunstantially reduce your mortgage.

[Assuming 22 more payments]
Interest on your current balance @ 7.11% = 7240
" " " " " @ 5.00% = 5091
SAVING = £2, 149
Your penalty @ 6% = £3, 332

However if you remortgaged and paid off £20K at the same time from your savings then @5% you'd end up paying £3,208 in interest over the 22 months but of course your savings wouldn't then be earning interest which you'd have to balance against this.

I've used 5% as this is just above the best rates available but you must be paying 7.11 and have 6% redemption penalties for a reason, previous bad credit history maybe? You're only going to get a rate like this if your history is now repaired. I think you need to get advice from a whole of market mortgage broker who can go through all your circs and see if they can find anything better.

Otherwise as canny yorkshireman says pay off the max each year, you'll still be paying 7.11% but on a lower balance and you'll avoid the penalty.

HTH.

jamesd

Compared to a 5% mortgage you're paying about 1200 a year in extra interest for almost two years. Cheaper than the 3300 penalty.

Least cost if the lender won't adjust the rate is to pay off as many 5000 a year capital payments as you can so the capital on which you're paying the interest decreases, though only by about 100-125 more than you lose in savngs interest on the 5000. Check whether it is annual interest calculation to work out whether and when to pay the capital and/or overpayments.

Hopefully you had a good rate earlier to compensate for the rate you're paying now.

$17mma

jamesd wrote:

Compared to a 5% mortgage you're paying about 1200 a year in extra interest for almost two years. Cheaper than the 3300 penalty.

Least cost if the lender won't adjust the rate is to pay off as many 5000 a year capital payments as you can so the capital on which you're paying the interest decreases, though only by about 100-125 more than you lose in savngs interest on the 5000. Check whether it is annual interest calculation to work out whether and when to pay the capital and/or overpayments.

Hopefully you had a good rate earlier to compensate for the rate you're paying now.

Yes rate was good before at 4.5% introductory, there was 100% equity in the house before remortgaging and credit is good.

I will find out tommorrow whether the interest is calculated annually, if so when will the best time be to pay overpayments?

Xbigman

If it is calculated annually make the first lump sum payment in early december (as an earlier repayment does not reduce the interest you are charged, so you want the money in your bank earning you interest) and the next payment the following dec.

If interest is calculated daily the time for the first lump sum is now, with the next lump sum on 2nd Jan next year.

Either way, make sure the lump sum comes off the term of the mortgage. That way you pay as much as possible as fast as possible.
Regards



X

$17mma

I have just spoken to them and they have said that the interest is calculated daily so have made a 5k payment and will do so again on 2nd Jan until can switch.

Will this reduce the monthly payments? and am I better to switch to repayments or leave it as it is until I can move the mortgage all together?

jamesd

Ask them about the monthly repayment amount and let them know if you have a preference. Since a higher monthly payment would be an overpayment you might pay a penalty for overpayment above 5000 if they didn't reduce the payment, so I expect that they will reduce it.

Since interest is calculated daily you will save the greatest amount of money by making a lump sum payment on the first possible day instead of spreading it out over a year or more with increased monthly payments. 5000 more on 2 Jan 2007 looks like the best choice. Repeat on frst business day of 2008 to save £18.65 in 2008 before 3/3 (7.11% on £5000 less 4.85% you could get in a savings account, tax ignored, raises the real saving).