2 Year Term Mortgages??

balmufc

betmunch wrote: »

so you think paying the full ERC would be better than just ignoring it and overpaying as much as posible?

If you have a 10% per year overpayment facility that you get with most high street lender you are likely to do better staying where you are and just ingoring the ERC, that way you will not end up paying the full ERC at all AND there wont be any set costs of a new mortgage!

I think you need to get some proper advice rather than a forum where there are too many assumptions

Yes I think paying the full ERC will be better purely because we are reducing the term of the mortgage from currently 7 years to 2 years which represents a significant saving as we will be paying it back so quickly. Also the rate will be reduced from 5.49% to about 3%.

We will have to pay a ERC to our current lenders of about 3k and we have about 55K left on our mortgage. By taking out a new mortgage for example with First Direct over 2 years fixed (2.99%) we will be paying back about 11k less in interest overall than if we stayed where we are.

However, we do need to compare this to staying where we are as we are allowed to pay 10% overpayments without penalty on our current mortgage. Like you say we probably need proper advice to do this.

blueberrypie

On the face of it, it does seem that switching is the better option for you - but your situation is a little unclear, which I think is why people are frowning and scratching their heads. Having chosen a ten-year fix three years ago suggests that you don't have a lot of room in your budget for much-increased mortgage payments - but now you are looking at a very much higher payment. You don't give all the figures necessary to calculate it, but I'm guessing your current payment is somewhere around £800/month, and to pay off £55k in two years at 3%, you'd be paying £2400/month. Obviously we don't have all the details of your financial situation, but what you have said does paint a fairly unusual picture - what you want to do now doesn't typically fit with someone who made the choices you did three years ago.

koexelek

There are loads of mortgages currently available where you are tied in for the first two years but not after.
So why not take one of those ( over a 5 year term to keep the lender happy) then repay it after the initial two years with no penalty ?

balmufc

blueberrypie wrote: »

On the face of it, it does seem that switching is the better option for you - but your situation is a little unclear, which I think is why people are frowning and scratching their heads. Having chosen a ten-year fix three years ago suggests that you don't have a lot of room in your budget for much-increased mortgage payments - but now you are looking at a very much higher payment. You don't give all the figures necessary to calculate it, but I'm guessing your current payment is somewhere around £800/month, and to pay off £55k in two years at 3%, you'd be paying £2400/month. Obviously we don't have all the details of your financial situation, but what you have said does paint a fairly unusual picture - what you want to do now doesn't typically fit with someone who made the choices you did three years ago.

Apologies for not being clear - I can see what you mean so I will try to explain our situation in a bit more detail:

We originally took out a mortgage of 80k fixed rate for 2 years with a term of 20 years 5 years ago.

After the 2 year fixed period we changed lender and fixed our mortgage for 10 years with a term of 10 years too. This was 3 years ago so before the credit crunch, etc so were happy with the rate we got of 5.49% and also happy that we were reducing our term to 10 years. I see what you say about what we are trying to do now doesn't seem consistent with what we did 3 years ago but we have had a lot of expenses over the last 3 years that we had to take into account when we remortgaged the last time. Now these expenses have been paid for we don't envisage any major expenses over the next 2 years so feel it is a good time for us to put all our finances into paying off the mortgage.

Now we have 7 years left on our mortgage but feel it would be better to pay off the mortgage asap rather than putting our spare money into savings accounts as the rates aren't very high at the moment.

The figures you quote are about right so we are currently paying about £750 a month but changing to a 2 year mortgage we will be paying about £2400. Our joint earnings can cover this increase as like I said instead of saving this money we will just use it to pay off the mortgage. We also have SOME (not for the entire 2 year period) savings should anything happen to one of our jobs to cover that posssibility too .

Hope that makes things a bit clearer but if not please ask.

Thanks.

balmufc

koexelek wrote: »

There are loads of mortgages currently available where you are tied in for the first two years but not after.
So why not take one of those ( over a 5 year term to keep the lender happy) then repay it after the initial two years with no penalty ?

This could be a possibility but I'm not sure what the advantage of doing this would be as opposed to taking out a mortgage over 2 years and paying it all back in that 2 years.

koexelek

balmufc wrote: »

This could be a possibility but I'm not sure what the advantage of doing this would be as opposed to taking out a mortgage over 2 years and paying it all back in that 2 years.

Because most lenders have a minimum term of 5 years

redpete

balmufc wrote: »

This [taking out a 5-yr mortgage and repaying in full after 2 years] could be a possibility but I'm not sure what the advantage of doing this would be as opposed to taking out a mortgage over 2 years and paying it all back in that 2 years.

The advantage is flexibility. Your ability to pay it off in 2 years relies on your circumstances staying the same (you've said that savings would not cover the fuill 2 years if one of you lost your job). I would prefer the flexibility of having 5 or more years to pay it off with affordable monthly repayments that allow for changes in circumstances (including rises in interest rates) rather than having the minimum payments set high based on a 2 yr term.

balmufc

redpete wrote: »

The advantage is flexibility. Your ability to pay it off in 2 years relies on your circumstances staying the same (you've said that savings would not cover the fuill 2 years if one of you lost your job). I would prefer the flexibility of having 5 or more years to pay it off with affordable monthly repayments that allow for changes in circumstances (including rises in interest rates) rather than having the minimum payments set high based on a 2 yr term.

Fair point but getting a 2 year fixed mortage over a 2 year term would mean changes in interest rates wouldn't affect us. Also the main incentive for us is to be mortgage free asap based on our finances so getting a 5 year term is not as attractive to us.

However, if we could make overpayments to reduce the term of the mortgage then that could be a possibility but then I would probably prefer a 3 year term rather than a 5 year term as we are more likely to spend money if we have it in savings so would prefer it to go straight into paying off the mortgage.

balmufc

koexelek wrote: »

There are loads of mortgages currently available where you are tied in for the first two years but not after.
So why not take one of those ( over a 5 year term to keep the lender happy) then repay it after the initial two years with no penalty ?

But wouldnt most mortgages require me to pay a ERC as the term of the mortgage is 5 years and I would be paying it all off right after the 2 year tie in period is over?

betmunch

No, the ERC is generally for the product period, in your example it would be 2 years to match the 2 year fix, even if you had a 5 year term to get more lenders interested.