Its complicated and way over my head.... HELP! subordinate mortgage

Fon

Hi, thanks for looking.

We are selling a house for 230K

We owe 105K and have a really good rate of 1.25% (0.75 above base rate) and we can over pay when ever we like. We have 11 years left to pay at the rate we are currently overpaying by.

We are buying a new property for 270K

So we need to borrow 40K

Our current lender (Coventry) cannot change the existing deal we have with them, so wants to lend us the additional 40K on a new separate mortgage.

The new deal is capped at 3.65% and a current rate of 2.65% for the 40K. They also insist that this and the old loan will now have to be paid of in 11 years. (they say we can extend the term later if we need to reduce the payments, but we cannot have a different term on both loans)

This sounds a little expensive and I want to shop around, But how on earth can I do that..?

As, when I look for another deal on the 40k, they want to know what deposit we will be paying..?

This is the bit that really confuses me. How much equity can I take away from my 125K profit? (Ie the money I would have today if I just sold and cleared off the mortgage.)

Surely both the old and new mortgage companies are going to want some money / equity for the deposit?

Very confused if anyone can help please...?

Many thanks,

Fon

Bella79

Im no expert but if you have 125k profit from the sale of our exisisting home that is what you would put down on the new home? so 125 down as deposit then the rest on mortgage. unless you want to take some of that 125k for fees etc so you would put down 120 etc? u can take as much or as little as u want, the more u put down the less amount borrow

Fon

Thanks Bella,

I dont think I explained it clearly enough.

We are going to have two mortgages on the new property and potentially from two lenders.

So I need another 40K. I cannot borrow this extra on the first mortgage without losing my great rate, so that's a no.

So (and this is where I don't understand how it works) Ill need to take some of my profit, to pay a deposit on the new mortgage of 40K?

Thanks again,

Fon

Bella79

Way over my head too lol, i didnt even know/think you could have 2 mortgages for one property from 2 diff providers lol

holly_hobby

All mortgage lenders will require first charge if they issue a mge on a property - which is where the sticking point is, and why you will not secure an additonal 40k mortgage with a traditional mortgage lender.

Your only route is to source a secured personal loan ie a loan secured against the equity in the property as a 2nd charge - the interest rate will not be as attractive as a traditional mge rate, so if its more than quoted by your existing lender for the 40k further advance, you would be better taking that route instead.

Furthermore, your morgage lender must give their permission for a 2nd charge to be entered on the property by the loan company - and are perfectly permitted to decline the request.

Hope this helps explain things ...

Holly

Fon

Thanks Holly,

Sounds like they have us in a corner and ill have to take the new deal on the second mortgage then???

Fon

hcb42

thats a good deal!

Fon

hcb42 wrote: »

thats a good deal!

Currently 2.65% Capped at 3.655??

Really!!???

I haven't shopped around yet, but based on the 0.5% BOE rate, it seems a little high???

Fon

holly_hobby

UK lenders borrow money on the money markets at LIBOR (London Inter Bank Offered Rate)- and will secure tranches of money at different times at different rates, as the LIBOR rate changes.

That is why you will find a fixed (or capped .. god they were the days !) have reservation fees (i.e you are reserving your portion of the pot at the given rate), and often limited funds.

Obv the rate the bank buys at is not what is charged to the end user, as the banks do need to make money on their loaned capital !

No one is ever just charged BOE - it will always be either plus or (pre-crash) minus a stated % rate. i.e BOE & 2% or whatever

Hope this helps

Holly

getmore4less

Are you saying they are lending the £40k at 2.65%base +) capped at 3.65%

How long does the cap last?

what the follow on rate

any over payment limits.

fees

If they will let you port the £105k at base +0.75%

Subject to the above info snap their arm off you won't get close to this.


Why have you been overpaying, savings rates are better than the mortgage, if you knew you were going to move you would have more cash to reduce the cost of the higher borrowing

Evilm

Fon wrote: »

Currently 2.65% Capped at 3.655??

Really!!???

I haven't shopped around yet, but based on the 0.5% BOE rate, it seems a little high???

Fon

Be prepared to be surprised. Its difficult to find anything under 2.75%. Mortgages are only loosely based around the base rate and are based more on LIBOR.

Thats a good rate! The reason that you were given a better rate before is that the base rate was much higher so they didn't need such a uplift from the base rate to ensure they were covering themselves and making a decent profit. This has now changed due to the low base rate and rather than being 0.25% above base lenders are offering 2% or so above base rate.

Assuming that the second mortgage company would allow themselves to be a second charge and not require you to hold the whole mortgage with them (thereby loosing your original rate) then both mortgage companies can use the same "equity". All it means is that they know if they have enough coverage for both companies to get their money back if you stop paying and they have to forclose on you.