Remortgage type - advice please

bohma2000

Hi,

I have an ordinary repayment mortgage with the Abbey. It does not end until 2022. The current balance is about £44,000 @ 6.75% variable. I need to repay this as soon as I can - at the least by 2010.

I would like a mortgage where I can repay more than the minimum figure each month without any penalties. Perhaps one where I could pay in my salary to the same account or periodically pay in amounts for a few months (e.g. £3000) and then take them out again. I would also like to avoid any fees.

I would really appreciate any advice here as I do not know much about the mortgage market.

TIA

Bren

MarkyMarkD

If your intention was solely to overpay the mortgage, most mortgage lenders (but not all) will allow you to overpay by up to 10% of the mortgage balance each year. This is sufficient for most people.

If you want to overpay by say £3000 but then take the same £3000 out again, it probably isn't worth paying the higher rate demanded by a lot of flexible mortgages. This is because the amount you'd save on the value of your entire mortgage by having it on a non-flexible product is often more than you'll save by effectively off-setting the £3k - so you'd do better to save the £3k in a good savings account. But if you can find a flexible product without any real price premium over a best-buy non-flexible product, obviously this would be the one to choose.

The problem with switching a mortgage of only £44,000 (relatively small nowadays) is that the switching costs will be high compared to any interest savings. So you'll probably benefit by choosing a product where the fees are low or NIL and the costs of moving loan (legal and valuation) are covered by the lender, albeit at a slightly higher interest rate.

In any case, you will save a fair bit of money compared to paying Abbey's SVR.

Hope that helps.