Help with mortgage calculations

Tight_Fist

My partner and I are currently half way through my fixed rate mortgage with the Halifax (fixed till 01/10/2012 @ 5.79%)
Having searched on this board I noticed a lot of people going for the fee's free 1st Direct offset mortgage that tracks the BoE rate at 2.39%. I have spoken to 1st direct today and they explained how it all works and I already have an online bank account with them that can be converted to a joint account.
I basically need to get my head around whether it is worth doing financially?
My partner and I have a combined gross salary of £41500.00 and our current mortgage is £94400.00 plus we will need to pay the ERC of £2912.97 + £175.00 admin fee which we will add to the new mortgage so £97487.97.
I also have a loan of £5600.00 @ 9.3% and would take additional to cover this as well so in total £103000.00

We currently pay £711.94 for mortgage and £75.41 for the loan.

If we switch to the 1st direct at 2.89% (.5% above BoE) would we be better off than staying put and not paying the ERC?
I have savings of £2000 that I would pay towards the Barclaycard loan if we stayed with halifax (rainy day money)

Any help appreciated and if I have missed anything out just ask.

Sorry mortgage has just under 18 years I think as we have just finished a mortgage holiday and the loan has just under 9 years to go.

House value £175000.00

redb_2

So your current interest charge is
Mortgage £94.4k @ 5.79% = £5.46k
Loan £ 9.3k @ 9.30% = £0.52k
Total £5.98k pa

and you want to swop it for
Mortgage £103k @ 2.89% = £2.98k pa

so you save £3k of interest per annum - so your first year pays for the ERC payment of £3k assuming base rates stay at their rate of 0.5%

What happens after that though - do you enjoy 18 months of saving against your fixed rate or will you pay a higher rate of interest with higher base rates?

If base rates jump to 3.5% you are back to where you were
Mortgage £103k @ 5.89% = £6.07k per annum

Its a tough call - IF rates stay where they are then you save £4.5k - if they dont stay at 0.5% then you eat into this saving and may loose it altogether

As an aside i am with first direct and have found their offset product and customer service to be excellent

Tight_Fist

Thanks Redd I would continue making the same payments or just round up to £800 per month. Also the loan amount is £5.6K.

Regards

Mark

redb_2

The calculations purely look at the interest side of things - if you can carry on with the same level of payments then thats good MSE practice - you will be overpaying on the mortgage, reducing capital, reducing interest costs etc.

The beauty for me of the FD offset product is that i havent paid a penny off against the capital since i have had it 18 months ago - all my capital payments go into savings accounts 3% which generate more than the mortgage interest costs me (base +0.5%). Im not bragging about this just pointing out that FD havent asked for any capital payments or even checked that i have got a repayment vehicle outside the mortgage to pay it off. In other words as long as i pay the interest they dont mind.

Are you sure you want this fantastic flexibility in light of mortgage holidays and long term loans that you currently have - wouldnt you be safer with a traditional repayment mortgage?

dimbo61

Check your credit score ( just had a mortgage payment holiday !!!).
I have and like offset mortgages but mine was fixed for 5 years.
You cant really compare fixed and tracker deals

Tight_Fist

So would I be better off making any additional payments into an ISA that would earn more interest rather than paying off the balance of the mortgage.
If that is the case I would still have some 'rainy day money' that my wife insists we have.
Also I fancy the idea of stoozing on a 0% purchases credit card and putting that into an a/c or pay the mortgage.

Thanks for everyones help.

I am off to request a credit report via quidco now to see if I have been effected by the mortgage holiday.

redb_2

"So would I be better off making any additional payments into an ISA that would earn more interest rather than paying off the balance of the mortgage."

Its more difficult for you as your rate is base +2.39% - its not impossible - you would just have to make sure you got the very best deal on a cash isa. Not sure if i have done the right thing in getting you thinking about this , my point i wanted to make was that FD are truly flexible with their mortgage and that you need to have some discipline.

"If that is the case I would still have some 'rainy day money' that my wife insists we have."

If you make the overpayments then the rainy day money fund will soon appear as a reduced mortgage balance that can easily be accessed as part of the fully flexible mortgage.

The stoozing will work by building up your expenditure on the 0% cards and putting the money into the mortgage account - but again it requires discipline.

The 0% cards and the money in the cash iSA are only going to generate a £100ish - and yes every little helps - but dont be swayed by these features of the FD offset account - your real decision which involves £1000+ of savings or extra costs is whether you are going to jump off the fixed rate ?

Tight_Fist

Well I spoke to FD today (hour and 10mins) and our application has been verbally approved subject to drive by valuation and wage slips etc etc and will take about 4 weeks to go through. We opted for the +2.39% above BoE and extended to 25 years so the least amount of money goes to paying off the mortgage and the rest is going into the A+L cash ISA's at +3% above BoE for 12 months:beer:
Now FD mentioned about paying interest only but I said we would pay capital as well but can we just pay the interest to load more into the ISA's or will they expect us to pay capital each month as well?