Paying lump-sump off mortgage vs. re-mortgaging

Jenbie

My great-aunt has given us £10K for Xmas. Totally in shock, but over the moon, as this is potentially a life-changing amount for us, as long as we don't wee it away. We currently have an horrendously high interest-only mortgage, fixed for 5 years as 7.24% interest rate, because at the time we bought, that was all we could get with a 10% deposit. Since then, we have heard that mortgage deal have improved but if we leave before the fixed period ends in 2 years, we have to pay a £3375 penalty. However, my dad thinks it might be worth it if we owned 20% of our house, and with this money, we almost would, depending on how much our house is worth. We think it will have stayed the same, or possibly increased slightly in value, given we have had cavity wall insulation added and a new roof. So our immediate thoughts are to have the house valued and speak to a financial advisor about what sort of deal we might be able to get. Just paying off a lump sum wouldn't take our payments down much we don't think, maybe £60 a month, but that wouldn't be significant given we currently pay £680 and it cripples us.

We are hoping if we re-mortgaged and could get an 80% mortgage, we might be able to get something around £550 a month, ideally repayment. This would make us comfortable, rather than struggling. Do you think this is realistic and a good idea? We both really want to use the money to do somethig big like this that could really help us, rather than spend it on material stuff. Ideally we also need a bigger car, but I am unwilling to use it on that really as cars depreciate in value, and the house should be an investment over time. What do you think? We want to move quite quickly on this, as if re-mortaging would like to do it ASAP before my SMP ends in March and we are into 4 months of me getting paid nothing at all. Also, the longer we leave it, the more likely we are to wee it away on trivial things.

Thanks.

opinions4u

How much was the property valued at 3 years ago?

How much is it worth today?

How much is owing on your mortgage at the moment?

Who is your lender?

What is their current SVR for your mortgage that you will fall on to in two years?

What other loans, overdfrafts, credit cards or other debts do you have?

Do you have any missed payments or other nasties in your credit history?

The key here is working out whether to remortgage now, or wait two years until your fixed rate exires. Knowing the information above will let people work out the best way forwards for you.

RenovationMan

I would do your sums very carefully to make sure that an early repayment will pay off. You will be gifting a third of your Aunt's kind gift to the bank, so you need to make sure that it more than pays for itself.

I would be inclined to see if the lender allows overpayments (the standard for many seems to be 10%) and if they did, I'd pay in the maximum I could over the two years and then pay the remainder off when the deal has finished.

Depending on which mortgage provider you're with, they might waive the overpayment charge completely if they are a subprime lender and want to improve their mortgage risk levels. It's always worth asking, £10k overpayment is much better than a £7k overpayment.

Wh05apk

If you are only saving £130pm over 2 years that's about £3k over the period, which is not enough to recover your penalty. At 80% LTV you will need to go on to repayment, which will bump your payments up quite a lot?

At 80% LTV the rates will not be great, it may be that your follow on rate is more attractive, so could be worth a bit of pain for 2 years to benefit then, possibly using some of the money to help you out, and some as a capital repayment.

Jenbie

opinions4u wrote: »

How much was the property valued at 3 years ago?

How much is it worth today?

How much is owing on your mortgage at the moment?

Who is your lender?

What is their current SVR for your mortgage that you will fall on to in two years?

What other loans, overdfrafts, credit cards or other debts do you have?

Do you have any missed payments or other nasties in your credit history?

The key here is working out whether to remortgage now, or wait two years until your fixed rate exires. Knowing the information above will let people work out the best way forwards for you.

Can't remember off the top of my head how much the property was valued at 3 years ago, but it was either £122,000 (which was what we got it for) or £125,000 (which was what we agreed to pay before survery found the roof needed doing).

We need to have the house valued to get an indication of what it would be worth today, but a comparable house 5 doors down is on the market for £119,000, and doesn't have an extension or a new roof like ours.

At the mo, we owe £113,701, and our lender is the Halifax.

The current SVR for our mortgage is 3.5%, so hoping our payments will fall considerably after the 2 years, allowing us to start overpaying, though not sure how to work out what our payments will be - may need to ring the Halifax!

We don't have a lot of debt. We are paying off our car, which is £93.20 a month until August 2012, though it's nearly 5 years old and just cost us £400, so might be better off buying another. No credit cards or other loans, no overdraft we are paying off. May have missed a credit card payment once or twice four or more years ago, simply through forgetting to pay/not receiving the bill and forgetting. Currently don't *do* credit cards.

Increasingly thinking we would be better off struggling through the next 2 years and being better off afterwards.

Jenbie

Wh05apk wrote: »

If you are only saving £130pm over 2 years that's about £3k over the period, which is not enough to recover your penalty. At 80% LTV you will need to go on to repayment, which will bump your payments up quite a lot?

At 80% LTV the rates will not be great, it may be that your follow on rate is more attractive, so could be worth a bit of pain for 2 years to benefit then, possibly using some of the money to help you out, and some as a capital repayment.

What is LTV? Would going onto repayment definitely bump our payments up - am thinking the interest rate would be lower now than when we bought and we would at least be reducing our capital? Slightly disappointed that the rates will not be significantly better at 80% - had thought 80% was the magic number where better deals started becoming available. Doh!

Agree it might be better to pay off the capital. Currently thinking would pay off £10K as a lump sum, as think we can pay off up to £12K a year with no monthly restriction. That would reduce our payments slightly (need to check with the Halifax by how much) and we could hopefully continue paying at the same level as now and pay off another grand or so of the capital.

Another option that has been suggested to me is putting it in a stocks and shares ISA, but am worried we would lose it then...

opinions4u

Pay off the unsecured credit.

Pay the balance off the mortgage as an overpayment (you should be allowed up to 10% of the debt).

Stick it out on the high rate (sorry), get on to a repayment mortgage now and review the position again in a couple of years.

Use any reduction in loan / mortgage payments to build up some savings to pay another lump sum off the mortgage next year.