increasing loan term from 21-30yrs

hemmyennis

Hi all,
advice appreciated on this please....

we've got a 5yr fxd mortgage with A&L at 5.59%....with 1.5yrs remaining on the deal. It has a tie in, meaning that our ERC would be £8k+ at the moment. Our current 5.59% means our repayments each month are £1815.


We really could do with this being reduced, but because of the ERC can't move. A&L have suggested changing our mort term from our current 21y to 30y, meaning a monthly repayment of £1572, saving us £243 per month. They've said this arrangement would have a cost of a £25 admin fee and after the 1.5yrs can switch back to a 20y mort term.

Are we daft to do this in order to reduce our mortgage repayments in the short term. We could really do with the reduced payments, second kid has arrived and now going back to work with 2 lots of kiddiecare...etc...etc..means my wage will not actually acrue much other than to keep me employed and the career going.

Our current loan is 274K, of which most is still interest. Very little capital seems to be getting paid ATM.
thanks for your help
Heather

beecher2

Even less capital will be paid if you do this - go onto Debt Free Wannabee forums to see if there are other ways of boosting your income, and decreasing your expenditure. That's one huge mortgage to have, so I'd have thought your income must be high so there may well be areas of expenditure you can cut back on.

getmore4less

Agree with Beecher2 try to find the savings elsewhere first.

You are just extending the borrowing from your future selves by extending the term of the debt.

originalmiscellany

Well said Beecher2. Sounds like you need to check everything is cut back, and luxuries to go etc.
Do you have much equity in your house? I assume you're on a high rate as you got a 90% mortgage or something like that?
When you got your mortgage, how did you manage to get such a large amount of money? Your combined salaries must be pretty generous for the bank to loan you that much money

You also have to think long term, what will happen in say a year and a half when this mortgage is up, what then? Will you be in a position to get a decent deal e.g. a lower LTV or will you be at the mercy of your current mortgage provider, who seems to specialise in really high rates as it is

delmar39

getmore4less wrote: »

Agree with Beecher2 try to find the savings elsewhere first.

You are just extending the borrowing from your future selves by extending the term of the debt.

Agree with this. Do what you can to save in other areas. Look at all your outgoings to see what you can save. Make sure savings are in the highest paying interest accounts. Childcare should reduce when your children turn 3 (or I think it's the term after their 3rd birthday) saving you a bit. See if you can make the £243 savings that the increased mortgage term would give you.

I'm not really an expert in this field having only had repayment mortgages, but what about interest only mortgage for a short while? However, the erc seems to be a barrier.

Totally understand your position, but I really wouldn't up your mortgage term.

Perhaps when you get your mortgage down a bit and when your product ends in 1.5 years time you coudl get yourself into a position to overpay a little each month. Big ask I know, but do your best to work towards it.

hemmyennis

Thanks guys, we're only thinking of doing this as a last resort. We're not big spenders - having kids means we don't have much of a life anyway!! ;-)
We're pretty money savvy for all the normal things in life and have zero debt apart from the large mortgage.
Its just going to be very depressing going back to work and thinking we're not actually making any or much money from my salary....our 5yo will need a childminder for afterschool and holidays, and our 1yo will need a childminder too, both of which are cheaper than a nanny or having the little one in nursery. I do need to continue working - clinical work, so need to keep up the skills or become unemployable after many years out. I'm going back p/t to get some work life balance, and yes could make more by going f/t, but will then miss out on my boys growing up, so would rather not go f/t again til they're both in school.

After the 1.5y tie in we're free to go elsewhere or stay with A&L who will put us on to their SVR which is still less than our 5.59%.

Things will definetly be better after 1.5yrs, mortgage repayments should go down significantly, and we should even be able to pay some extra in if we decide.

Do we get penalised by switching mortgages every 3-5y? In terms of paying more interest than if we'd stuck with one provider? I really don't understand how this works....is it best to switch for the sake of a lower interest rate, or stick because it won't be a new mortgage and therefore start again by paying off tons of interest rather than capital!???

thanks for your help
Heather

Thrugelmir

hemmyennis wrote: »

Do we get penalised by switching mortgages every 3-5y? In terms of paying more interest than if we'd stuck with one provider? I really don't understand how this works....is it best to switch for the sake of a lower interest rate, or stick because it won't be a new mortgage and therefore start again by paying off tons of interest rather than capital!???

Your paying thousands in interest as you've a large mortgage balance. So switching to a lowest rate of interest you can is advisable.

To reduce the interest payable you need to make inroads into the capital balance. There's no easy option to speed up repayment of the debt. The less you owe the more capital you'll repay every month.

VT82

delmar39 wrote: »

I'm not really an expert in this field having only had repayment mortgages, but what about interest only mortgage for a short while? However, the erc seems to be a barrier.

Totally understand your position, but I really wouldn't up your mortgage term.

That's a worse idea than the OP's - they have suggested the more sensible equivalent to going interest only for a short while, but with a safety net of still paying the mortgage balance off if anything gets overlooked. If they went interest only for a short while, they would either need to seriously up their payments later on, or extend the term anyway.

I actually think what the OP has suggested is really sensible. £25/£50 for peace of mind all round, and they can overpay once their rate drops, and moreso once childcare costs come down if they wish.