Please help me...mortgage and clueless

stacey_appleby27

Hey everyone,

I am new on here. Not good with money or numbers at all but learning.

Last year I paid of all my debts and we bought our car outright so this is the first year ever we have savings. So far £7000 and hoping to save up to £1500 a month. I am in all the best interest rate savings etc but clueless when it comes to the mortgage. I could really do with some advice from a mortgage buff but please make it idiot proof. This is the situation with mortgage...

Bought a house at £108000 at peak in 2007. Had no deposit so was 100% mortgage as well as a higher lending fee. My debt left is £111033 and 26 years. The mortgage is interest only. Luckily last 2 years its been 4% so only paying £375.

So basically I'm wanting to know what to do. I can't get another mortgage can I until I have a decent amount of savings to pay some of it off? Should I keep saving in ISA's etc until I have 30% or something then look to remortgage?

I really am dumb when it comes to mortgages. I keep reading its better to overpay mortgage than save but it totally confused me.

Thanks guys

originalmiscellany

I would pay off the mortgage, as you have NO payment vehicle in place... At the moment, you're just pouring money down the drain, and when rates go up (Which they will do!) you could end up paying a huge amount. PLUS house prices are going to fall over the next few years, so you will be in a worse predicament than currently if you don't overpay now.

How much have you been able to save on interest only over the last 4 years?

redpete

stacey_appleby27 wrote: »

I can't get another mortgage can I until I have a decent amount of savings to pay some of it off?

Very unlikely (impossible?) to get 100%+ mortgage now, so you will need to pay off a good amount

Should I keep saving in ISA's etc until I have 30% or something then look to remortgage?

You should be saving somehow towards paying off the capital regardless of whether you want to remortgage or not, no use relying on house price increases to save you. Does you mortgage allow overpayments? It is unlikely you are getting better than 4% in an ISA so if you can some at least of your exces money should be going towards overpaying the mortgage rather than into a savings account. I would keep your monthly payments the same (or even increase them) as well as putting in lump sums. I would keep some cash savings back to allow for expected spending or unexpected emergencies.

blueberrypie

You won't be able to get another mortgage without a deposit of at least 10% of the price of the property you want to buy.

That leaves you with three options:
- stay in your current property and hope that property values go up enough to give you some equity - this seems unlikely for at least a few years
- sell your current house for the £111k you owe on it (again, this seems unlikely - you purchased at the peak so it's likely your house is worth quite a bit less than that) *and* save the 10% of the new property's price
- sell your current house for less than £111k *and* pay the current lender the difference between the sale price and the mortgage balance *and* save the 10% of the new property's price

As you're only paying the interest on your mortgage, the amount you owe is not going down (indeed, it appears to have gone up - have you missed payments?)

You need to have a few months worth of living expenses in accounts where you can get at it, but apart from that, you are wasting your money saving it when you have this mortgage debt. You won't make 4% after tax on your savings, so you would be better to overpay your mortgage by as much as possible, in order to reduce the debt.

If you save £5000 at 3% interest (e.g. in an ISA), you will earn £150 a year on it. However by putting that £5000 towards your mortgage, you will save £200 in mortgage interest.

stacey_appleby27

Thank you so much for your replies. I might get house valued, i's assuming maybe its only worth £100K but some people say they think its worth more. We have totally transformed it.

Not missed any payments, I assume I owe £111033 because of the higher lending fee we had to pay, I was 18 and very naive at this point, I just wanted a house.

Dont know much at all about the mortgage i'm on apart from its with RBS, standard variable 4%

Well we were wanting to move in a year and in a year I could have saved £25K or paid £25K off mortgage

So RBS will let me just paid more every month?

Thrugelmir

stacey_appleby27 wrote: »

So RBS will let me just paid more every month?

Go into the branch and speak to someone face to face. Then you can decide how you wish to proceed.

getmore4less

With £1500pm spare can we assume income to support this debt is good so low salary multiple?


Movng plan, with the cuurent market(on top of fees)
You would need 10% min
20% opens up quite a few more options
25% even more.
30% some more
Not many extra deals after that allthough RBS is one lender that does have some 40% deposit deals.

Have a look at RBS site to see what the options are if you wanted to move today.
(this will give you a feel for the relationship between deposit, term and rates)
You might feel that moving is worth paying a bit more or waiting might get you better rates or mean you can move to a better place and miss out a step and the fees(moving house is a lot more expensive than buying the first one).

Whats the price range of the kind of places you are thinking of?
Whats the price range of the next step up?

This gives you a goal to aim at, no point in thinking you can move in a year if it would be better to plan for two or three.

With £1500pm spare no need for an emergency spends fund you can cover most things by just not saving one or two months.(how often you need this will depend how good the budgte is and how well covered you expences are for the next year or two)

I would build up an Disaster fund to match your income loss risk, say loss of one job being able to cover expences for 6 months or longer if job type hard to replace. This can be longer term investsments.

Once that is in place(£7k might be enough allready) I would start to overpay the mortgage.

When reviewing the move, keep a bit back and not be so stretched that you cannot rebuild savings.

Play with a calculator for various senarioes and try to get an understanding of the cost of money and the power of overpaying.

http://www.whatsthecost.com/mortgage.aspx

With your £1500pm + £375pm your £111k @ 4% is paid off in 5 years 7months.
1. £92,605.19
2. £73,460.95
3. £53,536.75
4. £32,800.80
5. £11,220.04

stacey_appleby27

Thanks for your replies everyone. Really helpful. So I have rang up RBS and they said because I am on standard variable there is no allowance and I can pay off as much as I like. I have set up a standing order for £1000 a month and then any more will ring up and pay as a lump sun every month. Gonna keep the £5000 in the santander accounts for back up really incase we need it, plus its 5% interest.

Still not 100% I understand it all but listening to you all it seemed the best way forward. No set date on moving house so will keep chipping away at the mortgage and take it from there.

Hope i've done everything right.

Also just requested an amex cashback credit card. I love these forums xx

Thrugelmir

stacey_appleby27 wrote: »

Hope i've done everything right.

There's no one answer that fits everyone's circumstances. You have made sensible decisions that will open up further opportunities in the future. If nothing else will save you money.