Ditch the fix to cover shortfall? What should we do?

fitzmum

Hi All,

The ditch the fix dilemma is upon us and we would really appreciate some honest, balanced advice please.

I've been pestered for months by my local 'Total Mortgage Network' broker to pay us a visit and tonight he's come back to us with some figures which LOOK great on paper but I wonder really whether its going to save us anything i the long term.

Our situation is as follows

82,000 mortgage
74,000 Interest only
8,000 Repayment

8 years left to run

20, 000 endowment shortfall at worst case scenario from advice letters from the providers

Our current mortgage is fixed at 5.69% for a further 7 years - took out a 10 yr fix 3 years ago with the Nationwide.

Advisor is advising we take out a 5 year fix with Santander at 4.49% switching to 53,000 interest only, 39,000 repayment (also including a personal loan into the mortgage that we hold for 10,000)

Currently pay 460 a month for the mortgage
Currently pay 170 a month for the loan
Currently pay 150 a month endowments

New mortgage would be:

572 a month for the mortgage
150 a month for the endowments
15 a month for level term assurance

Saving around 50 a month AND addressing the shortfall.

This figure apparently includes all arrangement fees and ERC from my existing fix - The brokers fees are a whopping 1995 :eek: for a 'Lifetime of your mortgage' service!

Now it looks a no-brainer on paper as we would be addressing the shortfall & making a saving but I think the fees are ridiculuos when I can go to Santander and arrange this myself!

The risk,obviously is where interest rates will be in 5 years and thats also something we have to consider against the longer term security we have now.

Sorry for the long post but If anyone can have a quick look over the figures and tell us whether this would be a sensible decision I'd be really grateful

Thanks! x

Peelerfart

First thoughts,and at the risk of annoying the IFA's here

If you can go to Santander and arrange it yourself,why don't you ?

ViolaLass

How much would you have to pay to get out of your current mortgage? Because a £50 saving won't seem like much if the ERC is several thousand pounds.

Also, you could address the shortfall by just putting money aside to throw at the mortgage when your fix ends. That would involve no fees.

fitzmum

the £50 a month saving includes adding the ERC to the new loan and the arrangement fees & the 2k fee for the broker.

To be honest I've been trying to use a few mortgage calculators and theyre all coming out with a considerably higher monthly payment than he has quoted. Not sure If I'm getting the full story out of him

He says a 92k mortgage, 53k interest, 39k repayment over 9 years is a monthly repayment of 572 a month at 4.49%

He said this figure included all the fees but it cant as the mortgage alone would need to be 92k - the fees (ERC, arrangement for new and broker fees would come to about 6k!!)

Thrugelmir

You currently owe £82k on the mortgage.

You intend borrowing £92k.

So how are you intending to pay the ERC and the IFA's fees?

Your outgoings reduce by £50.

However how long does your personal loan have to go in terms of repayments? As all you may be doing is extending the term of this loan.

At the end of the 5 year fix interest rates may be a lot higher as well.

getmore4less

The key bit of information missing are the terms of the £10k loan?

How are the fees ERC getting paid the two totals are £92k

Now looking at your 2 rates.

5.69% over 8 years £460pm
£351 £74k I/o
£104 £8k repayment
£455 so not far off your £460

New loan
4.49% over 8 years £572
£198 £53k i/o
£484 £39k repayment
£682 total so this is not over 8 years more like 11 years


Why the assurance you have the endowment , do you need this?


You can ignore the endowmwnt in both cases if you carry on paying it.

To do a like for like we need the loan terns and how are the fees getting paid.

If you pay off the loan are there penalties?

fitzmum

Thanks - the loan will finish in 6 years time anyway. No penalties to pay off early.

The figures the IFA gave, he says, are including all his fees and the ERC but they can't be as the figures don't add up.

We would need to borrow around 98k to cover these. I don't have a lot of faith in his figures to be honest.

So...we'd need to borrow 98k

53k interest only
45k repayment

over 8 years, even at 4.49% would be more than we are paying now, I'm sure....

oh and surely we need the life cover to cover the repayment bit?

getmore4less

£10k 6 years £170 is a rate of over 6% so there is some saving there by getting the loan on a lower rate

The cover you had before was OK and cover with the endowment will still be there so why increase cover?.


What you need is a breakdown of starting point, money in(make this the same for both deals, amount owing after 5years(the new fix) and 7 years the penalty period(whats the followon rate)

I will be very supprised if the new deal leaves you owing less after 5years especialy with £6k fees.

Rough guesses for the 5 years
£10k 6 years paying £170(6.9%) after 5years you owe £2,123.68

£82k 8 years @ 5.69% paying £460pm after 5years £77,167.00

Total £79290.

£92k @ 4.49 paying £630pm(460+170) after 5 years £73,173.13

add £6k fees £98k after 5 years £80,652.18

You need the full details and a monthly breakdown

forthe 7 years.
£10k loan paid off in 6 so £170 towards the mortgage for a year.
£82k £460pm for 6 years leaves £76,007.89 for 1 year a £630pm so at end of 7 years £72,687.02

£98k @ 4.49 paying £630pm(460+170) after 7 years £72,426.30

Please check the numbers I have doine them quickly
Looks to me like a £260 saving over 7 years and the risk of 2 years where rates may be above your current 5.69

fitzmum

So...we'd need to borrow 98k

53k interest only
45k repayment

over 8 years, even at 4.49% would be more than we are paying now, I'm sure....

On the above - woudld anyone be able to confirm the monthly mortgage repayment please? I'm sure it should be more than the 572 that the IFA has quoted...



Thanks so much for your figures 'getmore4less' I do appreciate it.

It looks as though theres not a great deal of saving to be made but at least we would be addressing the shortfall.

I need to confirm the monthly repayment for the above though first.

Also, I see HSBC do 3.99% for 5 years too. That seems a good deal.

getmore4less

It looks as though theres not a great deal of saving to be made but at least we would be addressing the shortfall.

Not from the numbers I have shown, so if they are correct, since after 7 years you owe the same amount of money(give or take a few £100).

fitzmum

Okay, thanks for your help again - I can see that there is little or no saving to be made.

Just out of interest, can anyone tell me the following please?

So...we'd need to borrow 98k

53k interest only
45k repayment

over 8 years, at 4.49%

Most of the mortgage calculators I can find do not allow you to calculate part interest / part repayment options