Remortgaging - Offset Mortgage - basic question

harbinger13

Maybe a basic question.
If my house was originally worth 100K - with me making initial downpayment of 20K and then making a repayment mortgage of another 20 + 3K (interest) for the past two years, I am down to 60K.

Now I am planning on moving to offset mortgage. So most of the offers out in the market are asking for 30% or so of downpayment. Now does it mean on the total value of the house 100K? meaning which I have almost 40% equity on the home. Or are they asking for 30% of 60K which is 18K or so in fresh downpayment?

Essentially when remortgaging does the equity that I already have in the house counts for something?

Merry Xmas to everyone.

2sides2everystory

First up I am no mortgage advisor!

Having said that I have had several mortgages and I have helped family understand their options and my current mortgage is an interest only offset mortgage.

You mention 'downpayments' but essentially the key phrase I think when comparing offers is the 'Loan To Value' ratio (LTV) where the Value is the current value of the property.

So in your case I imagine the offset arrangement you are considering has a minimum LTV of 70% i.e. you need at least 30% equity to qualify. Do you have a good idea of the current valuation on the property? Did you buy at the peak of the market? No matter if it has gone down a bit ... Is it still worth £60,000/70% = ~£ 86,000 or more? If so you appear to qualify at least for the LTV parameter in the deal you are considering.

Your outstanding mortgage is relatively modest compared to some - do carefully weigh up the costs of remortgaging and the effect in change of terms / likely future interest rate moves versus your existing arrangement. Some of the application, legal and valuation fees on remortgage can equate to a couple of per cent up front on a mortgage as modest as yours.

magpiecottage

If you have paid off £40K off a £100K mortgage already in the last two years, I would say that the fixed costs of remortgaging are likely to outweigh the interest savings of an offset on a small remaining loan. There is nothing to stop you making periodic lump sum repayments, subject to your lender's minimum and any early repayment penalty.

pauljoecoe

When re mortgaging any 'down payment' or deposit is a percentage of your house's current value.

First Direct offer some good offset re mortgage deals with no fees. If you visit their site you can enter your requirements and see what deals they have to suit you.

It might be an idea to re mortgage with a higher loan than you need though because you can always pay back into it immediately and at any time after and that will then leave you with a buffer to draw on should you need it at some time in the future.

harbinger13

Thanks to all - I had confused myself by leaving out the LTV part and interpreting the other side of it as 100 - LTV (~= 30%).

I had put up the numbers for convenience sake - infact we owe more than that and through over payments we have raised the equity in the house to essentially around 50% - based on the assumption that the house valuation is still around the original mark; live in London.

A good idea by pauljoecoe draw to a little more than required such that I can draw down if required for further usage.
Thanks to magpiecottage and 2sides2everystory for your suggestions.

By the -general- current predictions of the money market here the base is going nowhere for probably another couple of years. So am tempted to take a chance on the floating / tracker rates rather than fixed. As usual the cunning banks dont make it easy; any low interest rate is smacked with an 'arrangement' fee and the 'fee free' ones are conveniently have high rates ranging from ~3%. Wondering if anyone has worked out which one is better.

As per my understanding all offsets are interest only and my repayment into a nominated account offsets the principal. My thoughts as of this time is to avail the low interest and use the offset mortgage to make overpayments to the account.

One further question: If the offset mortgage was for say 60K - with a 2year tracker - and by 1.5 years the 60K is in the specified mortgage account i.e. the principal amount is collected; what happens to interest then? Certainly it is not going to be 0 for the next 6 months - will there be a minimum stipulated in the accounts.

What would 'Closure Fee' on a Offset mortgage mean? Is it the same as early repayment fee?
"A fee which is payable if you choose to close an offset or repayment tracker mortgage. Where a customer wishes to transfer their rate to another property and the sale and purchase complete simultaneously the closure fee will be waived."

Thanks for you patience.
Rgds

2sides2everystory

harbinger13 wrote: »

As per my understanding all offsets are interest only and my repayment into a nominated account offsets the principal.

Mine is interest only but am not sure it has to be so. Clearly it is easier to work out one's own liability for interest if it is. The required monthly repayment is one thing. Deposits into a nominated offset account (and you could have several including ISAs with at least one provider) would not be repayments but merely contribute to amounts sitting in your nominated offset bank accounts which are used to offset the principal owed each banking day in order to calculate mortgage interest incurred for that day. Nominated offset accounts consequently forfeit any interest that would otherwise be earned if those accounts ceased to be nominated offset accounts.

One further question: If the offset mortgage was for say 60K - with a 2year tracker - and by 1.5 years the 60K is in the specified mortgage account i.e. the principal amount is collected; what happens to interest then? Certainly it is not going to be 0 for the next 6 months - will there be a minimum stipulated in the accounts.

With mine the interest would indeed be zero in any month when the entire amount of the principal was offset every day in that month. I understand that some offset arrangements are not that generous.

What would 'Closure Fee' on a Offset mortgage mean? Is it the same as early repayment fee?
"A fee which is payable if you choose to close an offset or repayment tracker mortgage. Where a customer wishes to transfer their rate to another property and the sale and purchase complete simultaneously the closure fee will be waived."

You seem to have answered your own question.

eddddy

Just one more consideration....

if you are changing lender, they will want a valuer to value your house, and lend you up to 70% of that valuation (assuming that it's a 70% LTV product). Their valuers may be very conservative. Their figure may be very different from what you believe your house is worth.

It may be worth asking the lender what costs you have to cover if you have to withdraw because a low valuation means you can't make the LTV threshold.

Anecdotally, I've heard people complain about remortgage valuers travelling long distances to value in areas they are not familiar with, and undervaluing by up to 25% (or maybe it's just over optimistic home owners!!!).

harbinger13

Thanks 2sides2everystory

Good suggestion from eddddy - will keep in mind. No amount of fine print reading helps for the sneaky fees that the lenders / banks put in.

Will let other know how I get on.

getmore4less

Whats the current deal, £3k interest on £60-£80k over 2 years is around 2%

There may be no need to offset/change if your rate is good.

RenovationMan

What amount of savings are you going to put into the offset account?