Reducing a mortgage with a hefty lump sum?

Cornholio_2

We received a grant of 25% of the sale value of our house(£39,250) and got a fixed mortgage for 5 yrs(22yrs total for £117,750)
The grant was used as the deposit, and after 10yrs is ours(we would have to repay a proportion if we sold in the mean time).
The Mortgage we pay is about £750 a month, which we can afford but is still a bit high for my liking.
If we inherited say £50-60k in a few years say, what would be the best thing to do regarding the mortgage we have? I think we'd be tied to the 5yr fixed term til 2014, but what happens after that?? Ideally I'd like to put any potential inheritance into reducing the outstanding amount, and remortgage over say 15yrs to pay maybe @ £450 a month. That way we could overpay each month and drop it to @10yrs while not overstretching ourselves.
Can this sort of thing be done, I really have no idea or is it better to save the money and overpay the max each month while still theoretically earning interest??(what interest for savers?!)
Is this the sort of thing a financial adviser would work out or can it be done DIY?

MFSaver

What is your mortgage interest rate? If you can find a savings account with a better interest rate, it is better to save the money. Remember to take into account that you have to pay tax on the savings (unless it's a tax-free account like an ISA).

If your mortgage interest rate is higher than your savings account interest rate, then overpay the mortgage at least up to the limit allowable without incurring a penalty charge. Without knowing what your penalty charges are, it is hard to determine whether paying a lump sum into the mortgage is worth it.

Check your mortgage terms and conditions. It is likely that you can pay off part or all of the mortgage without any penalty charge after your fixed term ends.

Cornholio_2

Until the 5 yr fixed term is up we can pay a max of £500 a month overpayment. There's an ERC applicable in this time frame too- so what's not clear is after the fixed term is up and we go on to a SVR can we then put as much in as often as we like- ie is the ERC and Max overpayment designed to make them some guaranteed money in the first 5 yrs?
So say it was down to £101,498 outstanding from 117,750(using the mortgage v savings link on this site!) at the end of the fixed term, can we then say- right, paying into the account £55k, take the outstanding debt to £46k in an instant then remortgage this to lower the payments? I'd rather have lower payments with potential to regularly overpay than high payments still with no buffer zone should times get hard? Don't know if this makes sense? Our SVR is currently about 4% so we'd need a savings account of @5% to make saving worthwhile- no-one is probably anywhere near that in the current climate?
I just want to dump a huge bit of the mortgage and reduce the % of our outgoings per month to a more manageable secure amount....

Thrugelmir

Cornholio wrote: »

The grant was used as the deposit, and after 10yrs is ours(we would have to repay a proportion if we sold in the mean time).

Are you sure that this is the case?

Cornholio_2

It was a rural grant and after 10 yrs they can't claim any of it back(ours was a complicated setup affordable rural housing but we have a rural burden/right of preemption by the trust that built them attached so we will only ever own 65% of the house, it's to stop profiteering....)
So in theory we will have 40k paid off plus what we've paid into the mortgage. The house was valued at £240k(hence sale price of £157k=65% of the £240- so in effect with the grant we've paid less than 50% of the market value (117 of 240))
It's our house for life, just want the !!!!!! paid off asap!

Thrugelmir

Cornholio wrote: »

It was a rural grant and after 10 yrs they can't claim any of it back(ours was a complicated setup affordable rural housing but we have a rural burden/right of preemption by the trust that built them attached so we will only ever own 65% of the house, it's to stop profiteering....)
So in theory we will have 40k paid off plus what we've paid into the mortgage. The house was valued at £240k(hence sale price of £157k=65% of the £240- so in effect with the grant we've paid less than 50% of the market value (117 of 240))
It's our house for life, just want the !!!!!! paid off asap!

Thanks for the explanation.

MFSaver

Cornholio wrote: »

Until the 5 yr fixed term is up we can pay a max of £500 a month overpayment. There's an ERC applicable in this time frame too- so what's not clear is after the fixed term is up and we go on to a SVR can we then put as much in as often as we like- ie is the ERC and Max overpayment designed to make them some guaranteed money in the first 5 yrs?

Your idea of keeping mandatory payments low, but overpaying when you can afford it, seems to me like a sound idea, since this gives you a buffer if you run into money issues.

If your mortgage terms and conditions say nothing about penalty charges after your fixed term is over, there will not be any. This is pretty standard. You should then be able to put as much as possible towards your mortgage after the fixed term ends. However, the best way to confirm this is to contact your lender. Best to double-check details to avoid making a mistake.

Do you expect to receive this potential inheritance close to the end date of your fixed term? If yes, I will wait till the fixed term ends before paying the lump sum into the mortgage.

If you are receiving this potential inheritance soon, it may be worth considering whether it will help you lower your LTV to the point where you can remortgage immediately and get a better mortgage interest rate. You need to check whether the reduction in interest payments is worth paying the ERC and fees for the new mortgage.

Overpaying in the meantime helps if you can afford it, because it means that your monthly interest payment gets reduced.

getmore4less

So looks like you paid 75% for a 65% share of a house.

Engeroosi

they paid 75% of 65% of the value of the house!! At least i think thats what they meant

dimbo61

The other possibility is to reduce the term IF you have alot of money to overpay the mortgage!
Taking the term down from 25 years to 10/15 years would increase your your mortgage payment big style