Mortgage. Increasing the amount of capital paid each month.

martrayf

Hi,

We are looking to move house soon but as always money is the deciding factor.

We brought our house in August 2007 for 145k, so right at the height of the market with a 95% mortgage plus fees on top. We added central heating, a new kitchen, renovated the garden and new decor throughout inc flooring or carpets. A house similiar to ours recently sold. It was up for £135k, no offers. I haven't found out what it sold at yet though.

We currently have £134,450 left on our mortgage over 31 years as we opted for 35 years at the start and are now on STR 4.99%.

We want to buy something for around 200k max. We have got 15K in the savings, but getting a mortgage at a decent rate is going to be tricky.

My question is, does the amount of capital you pay off increase as the amount you have left on the mortgage decreases. So, do I maybe put 10k of that savings onto the mortgage which will reduce the amount we have borrowed and therefore allow us to pay more capital off each month rather than mainly interest and hardly any capital which then reduces our LTV allowing us to get a better rate on a mortgage. Or am I better off leaving that in the savings earning currently 2.8% interest?

The mortgage payment is currently £700 per month, but if I reduced the years to 25 instead of 31 and the amount increased to say £750 a month would that make a difference to the amount of capital that is paid off each month?

I should really sit down with a Financial Advisor but I would like to get some feedback on here first as I like more than just 1 opinion.

Thanks

Martin

jen14

This is a really similar situation to my own. We bought in June 07 for 137K on a 95% mortgage. We made large overpayments and have now got it down to 112K. Its on the market at 120K and we have only had three viewings and no offers. We cant sell it so are going to rent it out and start saving 30K (15% deposit on 200K house). Which is what Nationwide have told me I will need to get a second mortgage.

If you want to get a rough idea what the lenders will think your house ifs worth now, look on Nationwides website. Go to 'Mortgages' then 'Calculators and guides' and put your details into HPI calcualtor (house price index).

Do you need to move house?

jen14

Look at the mortgage calculators on this website and you can include paying off a lump sum and it will give you all the figures.

TrickyDicky101

You will burn through at least £10k in fees and charges just to move so at the end of the day I doubt you will be able to secure another mortgage given you are likely in or close to negative equity at the moment.

If you are wishing to move any time soon then I would say forget it (unless you find an alternative source of funds like a rich relative dying in the near future).

Yes if you pay off the £10k against your mortgage then your monthly repayments will pay off a higher proportion of capital (assuming you pay the same monthly amount after your lump sum as before). It isn't going to be enough to help you move in the immediate future though.

deedee71

Ok so you have next to no equity at the moment. You want the bank to increase your lending by £65000 with a deposit of max £15,000. So your LTV would be 92.5% on a £200k house.

Doesn't look possible at all.

Paying down the your existing mortgage by £10,000 is pretty risky - leaving you with £5k savings - what will you fall back on if one/both of you lose your income?

Put your figures into the MSE mortgage calculator and see what £50 a month difference makes, not much really.

Unless I'm missing something I don't think moving to a more expensive home is going to be possible for you until you get some equity.

martrayf

Hi all,

Thanks for the replies. It is not sounding great and kind of backs up what I have been thinking.

I am so annoyed with Alliance & Leicester though because their SVR is 4.99% when other banks are 2/2.5%. Even Santanders rate is 4.24%, who own Alliance & Leicester and if it was lower I could be clearing lots more of my mortgage each month. I just think they are being greedy! I have phoned and asked to be switched but they unsuprisingly don't want to know.

I know it is my own fault too for being in this situation but I was a first time buyer back in 2007 and no-one could ever see the situation that we are in now happening.

We don't necessarily need to move, but we are in a 2 bed terrace and would like a 3 bed semi to start a family and live for quite a few years.

Just so demoralising that I can't seem to do anything about it.

Thanks

Martin

Thrugelmir

martrayf wrote: »

I am so annoyed with Alliance & Leicester though because their SVR is 4.99% when other banks are 2/2.5%. Even Santanders rate is 4.24%, who own Alliance & Leicester and if it was lower I could be clearing lots more of my mortgage each month. I just think they are being greedy! I have phoned and asked to be switched but they unsuprisingly don't want to know.

The lenders with lower SVR's would not have advanced you a 95% mortgage. So you don't really have a complaint on that score.

Pre the credit boom. Average time for moving house was 7 years. As it takes time to build up equity by repaying the mortgage. All you can do is take the long term view.

If you are serious about moving house then make overpayments on your mortgage every month. Cut out any wasteful expenditure and pay down the mortgage.

After 12 months you may be surprised to see the impact of your hard work. As every month you'll pay less interest.

Farmerbob

I would keep the savings. Your on the right track thinking to make overpayments every penny helps. I would not fiddle with the term as if you begin to struggle then you at least have the flexibility to reduce them again. I'm overpaying on my mortgage and have a plan to have reduced my balance sufficiently over the next 2 1/2 years so i have a bigger deposit after i sell.

Have you set a timescale that you would like to sell up and move?

Lifes_Grand_Plan

OP, your SVR is 4.99%

Your savings are probably earning 3% tax free if you are lucky, less if not.

If I was you, I would whack your savings (minus a small emergency fund) onto the mortgage. Overpayments will save you thousands if you reduce the term and keep your payment the same.

martrayf

Lifes_Grand_Plan wrote: »

OP, your SVR is 4.99%

Your savings are probably earning 3% tax free if you are lucky, less if not.

If I was you, I would whack your savings (minus a small emergency fund) onto the mortgage. Overpayments will save you thousands if you reduce the term and keep your payment the same.

Thats what I would like to do. But I think I will ring my bank to get some cold hard figures wrote down saying exactly how much difference it would make if I paid say 10k lump sum off. Plus it should in theory reduce my LTV so should I want to switch mortgage I could.

dimbo61

Now you are thinking along the right lines
Overpay what you can afford each month