Should I repay £30k part of interest only fixed mortgage

getmore4less

Not worked out the other thing yet.

There is another angle to reduce the ERC if the lender will let the OP do it.

Change the £30k I/O debt to repayment and reduce the term on that bit to 15 months.

holly_hobby

fGood alternative if the figs work for the OP -

30 x 5.63% x 15 mths = £31,138.35

Payable over the term @ monthly repaymebt of £2,075.89

Total incurred interest over the term of £1,138.35 (diff between current £900 ERP of + £238.35)

Still looking at a v decent net return, on a no or limited notice deposit feeder account to take accont of the above (as it will also have reducing capital content over the term, unless the OP keeps it topped up accordingly).

Or the OP if disposal income permits (and instead of topping up a low interest n notice feeder account), may wish to leave the current invesment in tact/select notice account for max growth in sector to ringfence the fund, and service the 30k C&I @ 5.63% from their own funds, using the generated growth on discussed investment to (hopefully) offset the £1,138.35 mge interest incurred over the same term.

H

getmore4less

With £500pm ERC free overpayments

£30900 in 2.5% net savings account with £2575 drawdown will generate £425 in interest in a year and

£2575pm mortgage paid of in 12 months with £924 interest.
(month 13 is £23 payment )

So from the same starting point the op end up with £400 in his pocket.

holly_hobby

Above figs are based on a 12 mth C&I repayment term - which will obv reduce the mge term by 3 mths (and incurred interest), but remains leaving the OP exposed to ERP (albeit it may be at a lesser figure than £900 at that point) - which runs on the account for a further 3 mths.

If the 12 mth period is attractive to the OP, also providing for the ERP from the required returns will need to be accomodated in the gte net return, unless anticipated £400 gain quoted, will wholly satisify the ERP charge applicable at month 12 ? (hopefully the OP will appear at some point to give feedback & figs as reqd)

Holly

getmore4less

holly_hobby wrote: »

Above figs are based on a 12 mth C&I repayment term - which will obv reduce the mge term by 3 mths (and incurred interest), but remains leaving the OP exposed to ERP (albeit it may be at a lesser figure than £900 at that point) - which runs on the account for a further 3 mths.

If the 12 mth period is attractive to the OP, also providing for the ERP from the required returns will need to be accomodated in the gte net return, unless anticipated £400 gain quoted, will wholly satisify the ERP charge applicable at month 12 ? (hopefully the OP will appear at some point to give feedback & figs as reqd)

Holly

NO

The numbers are based on a 15month repayment term(the shortest the lender will probably allow) with £500 (ERC free) overpayments.

Which reduces the balance to £23 in 12 months

Penaty s on outstanding ballance o drop so ZERO once the mortgage has a ballance of ZERO
If there are other penaties the op can leave £3 and pay £1 per month to end of term.

To break even the OP only beeds to find an acount that can generate £23 starting with the £30900 which should be easy.

holly_hobby

Ah I see what you mean ... wasn't clear to me in your post - you have used the 15 mth C&I repayment fig quoted in my earlier post & £500 permitted overpay to get to the virtual mge redemption at 12 mths (less os £23 quoted). (your ref to repayment at 12 mths threw me)

Having established that, I do feel that the move to C&I & overpayment is the safest option, other than holding off redemption completly as was originally suggested. The OP just needs to ringfence the capital into a low risk feeder and put the wheels in motion.

Holly

JimmyTheWig

Will they allow a mortgage term of 15 months, though?

We've done something similar with Santander with an additional loan ("2nd mortgage") for a loft conversion. The rates we were offered were much higher than on our main loan so are keeping main loan as interest only and using all of our repayment to pay off 2nd loan. We could pay it off in this way in about 3 years.
But the shortest mortgage Santander would give us was 5 years (tied in for 2 years).But with 10% overpayments a year on top of this it works out about the same as we wanted anyway.

I don't know if other companies offer shorter terms than Santander do, though.

JimmyTheWig

2 questions, holly.

What do you mean by "ringfence"? Is it a way of not exposing the S&S ISA to risk?

And what do you mean by the following?

holly_hobby wrote: »

the safest option, other than holding off redemption completly as was originally suggested.

By "holding off redemption" do you mean "not redeeming yet"?
Isn't this what you have been arguing against?
Have you changed your mind, or have I mis-read the quoted sentance?

holly_hobby

JimmyTheWig wrote: »

2 questions, holly.

What do you mean by "ringfence"? Is it a way of not exposing the S&S ISA to risk?

And what do you mean by the following?

By "holding off redemption" do you mean "not redeeming yet"?
Isn't this what you have been arguing against?
Have you changed your mind, or have I mis-read the quoted sentance?

Ringfence - secure the capital i.e remove from an asset backed medium to a deposit medium to secure the underlying value.

My ref was (should have read) that reducing the term & using a feeder account, was much more suitable (re OPs ATR) than the orig suggestion of not redeeming the IO element with the avail capital (to avoid £900 erp), whilst at the same time leaving it in the SS ISA, or attempting to seek a deposit based vehicle that would provide a net return over the period, sufficient enough to balance the mge interest that would have been incurred until penalty free redemption was permitted.

Hope that clears things

Hopefully the OP will be along at some point, with their response or comment to the disucssions raised.

Holly

JimmyTheWig

holly_hobby wrote: »

Ringfence - secure the capital i.e remove from an asset backed medium to a deposit medium to secure the underlying value.

That's what I guessed, but had never heard the term.
Is this possible within a S&S ISA wrapper?
Would the amount the OP ends up with depend greatly on the level of the stock market on the day it gets ringfenced and, if so, would it be better to ring fence it gradually? [Or by leaving it unringfenced for longer does that pose a greater risk than ringfencing on a bad day?]

My ref was (should have read) that reducing the term & using a feeder account, was much more suitable (re OPs ATR) than the orig suggestion of not redeeming the IO element with the avail capital (to avoid £900 erp), whilst at the same time leaving it in the SS ISA, or attempting to seek a deposit based vehicle that would provide a net return over the period, sufficient enough to balance the mge interest that would have been incurred until penalty free redemption was permitted.

That makes more sense!

Hopefully the OP will be along at some point, with their response or comment to the disucssions raised.

Yes, it would be nice if the person we were helping was going to read all of this!
In any event it has been an interesting intellectual problem and maybe in the future others in a similar boat will stumble across it.