Are we being conned?

noser

We have spoken to an F.A who has suggested a way of repaying our mortgage that we have never heard of. Put simply, your payments are split - minimum payment to your mortgage provider:an additional payment put into a 'safe' account. just before the annual review the money from the savings account is moved across to the mortgage provider, who then recalculate the balance for the next year. the repayment to the lender is reduced and the difference gets added in to the savings account. This will apparently reduce your overall term by two years.they have suggested that we will pay the same amount for a full repayment mortgage as we are currently paying for a 50/50 split.
Does this sound familiar to anyone? Are we being taken for a ride?

Nelski

Absolutely no mortgage expert but this just sounds like an interest only mortgage with overpayment opportunities.
Couple of questions spring to mind:
1. What is a "safe" account? With lots of people getting burned with endowments I wonder if this is a wise choice
2. If your money is kept in a straight savings account what interest will you be getting and is that classed as taxable income?
3. Would you ever be tempted worse case scenario to dip into the savings and therefore extending the possible term of the mortgage?

Does sound like a good option on the surface though I would do lots more digging to make sure.

payless

Potentially it does work - if the best deal for you is a mortgage that is calculated on an annual basis and you want access to the funds and the net saving rate is higher than the mortgage rate

Otherwise maybe easier to consider a repayment mortgage with daily interest calculation ( there are loads around!)

Please check with your adviser what range of lenders he is using - and if charges are being applied to administer this scheme which in some ways seems over complicated.

gibby

yes it works but be careful!

sometime ago I was asked to get involved with a firm that did this and they charged thousands in fees to do this and you can do it yourself for FREE

The firm was closed down but all of the reps started doing this through other firms - still charging the money.


basically they got the mortgage lender to agree to an overpayment.
They also set up a spare bank account and an extra amount was added each month so intotal 1 extra payment per year was palced into this account.

at the right time of the year this payment was then paid off your mortgage and the result was massive savings - but the usual fee was 2k at the start of the mortgage - and interest was apid on this.

to do this yourself for free ---

when you take out your new mortgage state that you want to be able to make repayments - without penalties etc.
if you use London & Country - as advise by Martin they will sort this out.

we did this and we can pay uptio 25% of the loan off per year without a surcharge.
If you take an interest only one it is much lower to repay monthly and you can pay off even £1

just paying £30 a month extra will save you as much as £30k over the term of the mortgage on an averge one.


its not complecated as you can just send a cheque.

many lendes dont like this as they make rules such as a min payment of £500 or that the payemnt will only be deducted in December.
BUT IF YOU ASK FOR THIS THEY SHOULD AGREE TO KEEP/GET YOU BUSINESS

L& C are very good at finding these and the bonus is no upfront fees saving £250 min.

L&C was one of martins best tips for me.

G

payless

Yes as Gibby says many options thats allow overpay - when I said complicated I was talking about using a firm to do this on the method posted by noser.

BUT
not sure about the £30K for £30pm calculation!

gibby

the 30k saving for £30 a month

i read ina financial mag - stating that 1 extra per day would save £30k over the term of a 25 year loan.


I have also seen illustrations that just by putting in 1 extra payment per year can achieve the same

BUT

do your own maths as some of the illustrations are done by Sales ppl and as rates are changing etc its impossible to give an accureate figure


G

payless

Yes as you say - salesmen and figures !

the amount of debt , original term and interest rate/ calculation would need to be considered but for example

look at http://www.skipton.co.uk/mortgages/calculators/flexible_mortgage_calculator.asp
based on say 5.5% average rate it would save upto £10K ( and thats based on a £400K mtg - savings are less on smaller mortgages)

For mortgages around £1/2 mill one would need rates in excess of 10% to achieve the quoted £30K savings, ( and an even higher average rate on smaller loans)