Ok Tell Me Where I have Gone Wrong

mascott514

Good Morning ...

I am looking into remortgaging, but its a bit more complicated than a standard situation, (I guess like most on here!)

We fixed at a high (ish) rate 6%, and have 18 months odd to go.

We will need to pay £6k Early Redemption Charge.

With about 70-75% LTV we are looking at a 4.45 rate.

We were thinking of waiting 18 months, but then we think the interest rates will creep up and the longer 5 year deal will be less competitive.


We are also considering 5 years fixed on an interest only product. This would cover the period of 5 years that our other debts have to run. We would essentially give us a couple of hundred quid a month to give us a bit of cash flow, and then also set up a standing order for the majority of the cash saved, (about £500.p/m), into a savings account .

Then, we would revert back to repayment in 5 years, on approximately the same monthly rate as now (assuming interset rates are roughly what they were a few years ago, having added the saved £30k onto the outstanding balance.


I know its hard to plan, and I feel that I may have missed a glaring thing, but it does seem to work on paper.

We are credit wise ok with no missed payments etc,

We have cash available to pay off the redemption charge and new product charge so we can avoid adding to out mortgage.


Ok, tell me where I am wrong!

Your help is appreciated, even the tough love!

beecher2

The problem will be in finding a lender willing to allow you have an interest only mortgage. Are you sure that remortgaging is worth it when you have to pay 6k to do so? You have cash available, so wouldn't it be more sensible to use that to pay off existing debt? What particularly worries me is that you're planning on using £200 of the savings to live off of - how sure are you that you'd ever be in a position to go back onto repayment?

somethingcorporate

How big is your mortgage balance? this will determine whether it would be prudent to change rates. With a 6k redemption it would have to be a mighty big mortgage to justify this in my opinion.

Good luck!

CloudCuckooLand

£6k is a hell of a lot to spend on avoiding an 18-month wait.

You are paying 6% - that is what you should be comparing the future against, in my mind. You'd need 18 months of being on 4.5%ish just to be getting your £6k back.

Plenty of people think rates won't move until the summer, and then by 1% or so for the next year...Just don't see the gain adding up to £6k, but need the mortgage amount to check the maths.

As for IO, you'd need a repayment vehicle. The money you "save" would need to go into that. What product can you be sure of getting 4.5% or 6% on, investment/saving-wise ? You'd be losing 5 years of the repayments lowering your overall capital owing, and pay more interest in years 2 to 5, than you otherwise would.

Has your lender indicated you can get IO? It may limit your options on product/rate etc.

If you have £6k to pay the ERC, why not reduce your debts directly? And/or drip-feed from it to give you cash flow..?

getmore4less

The glaring errors.

No one will give you interest only.

There won't be £30k you will not save that extra cashflow.

Why save at 2% net when the mortgage is 4%+

£6k ERC is unlikely to be recovered then you also have to add the fees.

How big is the mortgage what are the fees for the new deal,
I can work it out for you.

mascott514

Thanks all for your much appreciated replies.


The figures are

Outstanding Balance £219601.
Over 20 years at 5.95, Fixed for a further 18 months

Total Redemption
£226314

New product, (on paper, awaiting to speak to Broker so might be pie in the sky!)
4.45 Fixed for 5 years at £995

Currently Pay £1584 pm.

IO @ 4.45 showing as £820.

We take £200 ish to ease our cash flow per month (debt cleared at year 5.

£500 extra placed into savings product to £30000 plus small ammount of inteest to reduce balance when returning to repayment at 15 years to go.

Alternatives.
Do nothing, hope we can fix at good price later

Go to repayment and save about £200 per m.

Cant use cash we have now to clear personal debt, as cash is my wifes, and debts mine...

Thanks once again

CloudCuckooLand

Are you sure of your figures?

£220k at 4.45% looka like £1400, not £995, on repayment...you will never be saving £200, never mind £500...

Put the figures in here to check; http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml

IO hard to get and not certain to earn as much as paying off your mortgage...

Keep the £6k to offset any increase in rates between now and 18 months - drip-feeding £100 a month would last next fixed deal.

mascott514

CloudCuckooLand wrote: »

Are you sure of your figures?

£220k at 4.45% looka like £1400, not £995, on repayment...you will never be saving £200, never mind £500...

Put the figures in here to check; http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml

IO hard to get and not certain to earn as much as paying off your mortgage...

Keep the £6k to offset any increase in rates between now and 18 months - drip-feeding £100 a month would last next fixed deal.

Sorry, that 995 is the price of the product, not the rate pm, which you are right on....

Conrad

Interest only is simple to arrange with the majority of lenders as long as you answer thier questions correctly.

Many of my clients overpay each month as they see this far better than 'investing; in an ISA which attracts a lower rate of return than the mortgage rate due - and of course if you go the stocks and shares route there is a risk JUST AS WAS THE CASE WITH ENDOWMNETS! Also overpaying each month reduces the interest at a faster rate, rather than letting funds accumulate in an ISA and then withdrawing funds once per year to pay down capital.

As ever, the rule makers have never sold a mortgage and like military generals tend to be out of touch with what life is like on the front line (hence the reason for example troops found themselves in nightime freezing deserts where the pen pushers had assumed deserts were warm at night:o).

Play along with the lenders little games and even take out an ISA, but then just overpay each month and leave ISA empty.

getmore4less

mortgages owing in 18 months.

[STRIKE]
£219601 @ 5.95% paying £1854 £205,232.29 (normal repayment £1567)
£227309 @ 4.45% paying £1854 £208,524.72 (normal repayment £1434)
So after 18 months you are still £3300 behind
[/STRIKE].

£219601 @ 5.95% paying £1584 £210,302.64(normal repayment £1567)
£227309 @ 4.45% paying £1584 £213,540.98(normal repayment £1434)
So after 18 months you are still £3200 behind

So you are taking a bet that rates will have gone up enough that you save that over the following 3.5 years, work out the rate you would need to be paying to break even in another 3.5 years


Why cant you have the wife pay off the debts and you pay her back from the money?


No point in saving the £500pm over 5 years you will get less than the mortgage rate on the money so might as well pay it as you go rather than at the end of 5 years.

Edit : made a typo on the payment

mascott514

Conrad wrote: »

Interest only is simple to arrange with the majority of lenders as long as you answer thier questions correctly.

Many of my clients overpay each month as they see this far better than 'investing; in an ISA which attracts a lower rate of return than the mortgage rate due - and of course if you go the stocks and shares route there is a risk JUST AS WAS THE CASE WITH ENDOWMNETS! Also overpaying each month reduces the interest at a faster rate, rather than letting funds accumulate in an ISA and then withdrawing funds once per year to pay down capital.

As ever, the rule makers have never sold a mortgage and like military generals tend to be out of touch with what life is like on the front line (hence the reason for example troops found themselves in nightime freezing deserts where the pen pushers had assumed deserts were warm at night:o).

Play along with the lenders little games and even take out an ISA, but then just overpay each month and leave ISA empty.

Thats interesting,
I assumed that we couldnt pay off any capital as we went along on and interest only as the bank would essentially be loosing interest.

So if all the other sums were right, I could just overpay the differnce...better than trying to save at todays rates, but I guess there is a penalty for over paying.

Sorry if the answers are already out there, I have only been on this over the weekend.