Lump sum or not?

PerfectOne

1st year into the property market so please excuse me for the lack of knowledge in this area.

Got a joint mortgage last year with the wife and have been paying interest only on a 2yr fixed mortgage which end May 2012.

My agreement says I can voluntary pay 10% lump sum every year with out any penalty charges.

My question - Is there any advantage in paying the lump sum (£17k)?
If so will I notice any reduction in my mortgage straight away or will it come into affect at the end of the 2yr period which is next year?

Please advice. Thanks,

opinions4u

Paying a lump sum will reduce your interest costs immediately (assuming interest is calculated daily). If the mortgage rate is higher than savings rates it's certainly an option to consider.

You should be able to reduce your term or reduce your payments immediately.

Different lenders handle things in different ways, so you're best talking through the options directly with your lender.

PerfectOne

Also another quick question, (sorry about this) If i wish to change my lender next year and becasue I would like a better deal on a fixed repayment plan would there be a booking (or similar fee)?

PerfectOne

opinions4u wrote: »

You should be able to reduce your term or reduce your payments immediately.

.

Also which is better taking the option of reduce term or lower payments?

I assume taking the reduced term currently from 35yrs to say something like 30years I will notice a small increase in monthly repayments.

opinions4u

PerfectOne wrote: »

Also which is better taking the option of reduce term or lower payments?

I assume taking the reduced term currently from 35yrs to say something like 30years I will notice a small increase in monthly repayments.

It's your call. Personally I'd reduce the term if retaining the same monthly payment is affordable. The lender should be able to do the calculations for you.

If i wish to change my lender next year and becasue I would like a better deal on a fixed repayment plan would there be a booking

If your two year fixed expires you would normally move on to a lender's SVR which would usually have no penalty fees. But if you changed lender it's likely that there would be some sort of mortgage discharge fee (typically around £200 but varies from lender to lender). The new lender may or may not have a range of fees. Product fee, valuation fee, legal fees. Often where these are charged the interest rate alongside them is lower. Where the lender has a "no fees" promotion that rate charged is often higher.

PerfectOne

We are planning to make contribution towards the 10% that we are entitled to. However, as we wish to take full advantage of this opportunity we do not the the full funds available. Therefore, do you think the lender will accept some contribution from another party i.e my brother.

Wife and I = 7%
Brother = 3%

Doshwaster

I'm in a similar position.

I took out a mortgage last year on a 2 year fixed rate expiring in June 2012 with a 25% deposit.

I'm about to come into a chunk of money (approx 25% of my mortgage) through work as some share options are maturing. I have checked my mortgage and I can overpay, in each calendar year, 10% of the original borrowing. This means that I could afford to payoff 10% now then another 10% in January 2012 - and have some money leftover to do improve the house, have a holiday or throw into the pot if I remortgage in June 2012 to get me to about 50% LTV.

So, am I right in thinking it's better to reduce the mortgage term than the monthly amount? Currently my repayment is easily manageable but I'd really like to be able to clear the mortgage in around 15 years rather than 25.

Doshwaster

An update on this.

I spoke to my mortgage company yesterday and spoke to a fantastic lady who talked me through the options. Paying a 10% lump sum now would only decrease my monthly payment by £60. I'm not that desperate for that money so I decided to keep the repayments the same and then pay off another 10% in January next year. I will then review the situation when my fixed rate period ends in May next year.

InMyDreams

PerfectOne wrote: »

Also which is better taking the option of reduce term or lower payments?

I assume taking the reduced term currently from 35yrs to say something like 30years I will notice a small increase in monthly repayments.

You said your mortgage was interest only, so this is irrelevant. The interest payment WILL reduce immediately (assuming interest is calculated daily). (If your actual payment stays the same then any excess will be coming off what you owe, thus reducing the interest further.)

On an interest only mortgage, if you reduce the term it will have no impact on the monthly payment. It just means that the date you have to pay the remaining balance off is brought forward. (Which in turn means you have to save harder into your repayment vehicle. That's where your small increase will show itself.)