Mortgage deal ending - now what?

sancho

Hi there.

Firstly, apologies for the daft question, nearly 30 years old and I still don't understand the ins and outs of this.

We got our first house 3 years ago this September, the mortgage was arranged with the Nationwide through a broker. At the time my wife was just going onto maternity with our first daughter. We fixed for 3 years at a rate of roughly 5%.

Obviously 3 years is up now and we have had a letter through telling us it's time to switch to a new deal. I understand that I can just apply for a new deal with the Nationwide.

However, is this what I should be doing or should I look elsewhere? Our earnings are less than they were at the time of getting the mortgage due to my wife going back to work less hours than when we applied, as well as the fact that our second child was born two weeks ago, obviously meaning she is on maternity leave again.

Nationwide are offering a lower interest rate, as well as £400 cashback if I switch online - but I don't want to just go with them if I can get a better deal elsewhere. I presume applying to a different provider I would need to submit pay slips etc. as if it was a 'new' mortgage.

One last thing, the mortgage was originally for 35 years, now at 32, which seems ridiculous, we've been over paying a little a month (£100) and with the reduced interest rate we could afford to over pay a little, would I be able to pay a similar amount and reduce the term?

Sorry for all of the stupid questions, and advice would be gratefully received.

Dave_Ham

No questions are stupid questions, please ask away.

So, first step is see what Nationwide will do for you and you have that information. They will not request any additional information, payslips etc. and will be the simplest.

Now you have that, you need to compare against what is out there. There will be better, but you need to ensure you fit their criteria with your reduced income, bigger family etc.

You can either do this yourself, or get a broker to undertake the searching and comparing for you..

I would not be able to tell from the limited information provided what will be the most cost effective option, although if you want to give more specific numbers, loan to values and rates will be able to tell quickly.

In terms of overpayments, just ask Nationwide or the new lender to reduce the term and subject to affordability (with a new lender) this should be quite easy and amazing the difference it makes overall.

Good luck

beecher2

What does your mortgage rate go onto if you do nothing? Staying on the SVR might be the cheapest option, allowing you to save/overpay the difference.

kingstreet

I would suggest you leave the term alone. Reducing the term means higher contractual monthly payments whether you like it or not. Make voluntary overpayments which you can miss/reduce if circumstances dictate.

You'll achieve the same objective without the threat not being able to make the higher contractual payments carries.

sancho

Thanks all.

@beecher2 - If I do nothing it it goes onto the SMR of 3.99%, meaning my payments will go down about £70 (without overpayments)

I bought the house for £138,000, the mortgage was for £104,000. We have a balance of £99,000 and 32 years remaining.

I'm not sure what they are valuing the house at, but when I rang up last year to possibly borrow more for an extension (not happening now) they said somewhere around £147,000 - obviously that was a while ago so it could have changed but the ltv is around 66%/33% I suppose.

I've logged in to the Nationwide site and I can get a 3 year fixed deal (which is what I think we want for peace of mind) at 3.69% with no product fees. This would mean our payments would go down £80 per month.

kingstreet wrote: »

I would suggest you leave the term alone. Reducing the term means higher contractual monthly payments whether you like it or not. Make voluntary overpayments which you can miss/reduce if circumstances dictate.

You'll achieve the same objective without the threat not being able to make the higher contractual payments carries.

This was something I wasn't sure about. For example...

32 Years left, I pay £500 per month and overpay £150 per month,

or

26 years left (made up figure), because of the reduced term I pay £600 per month and overpay £50.

Would there be any difference in the long run to those scenarios? Obviously I'm paying the same out per month, but as you say I have to pay more.

Thrugelmir

sancho wrote: »

Would there be any difference in the long run to those scenarios? Obviously I'm paying the same out per month, but as you say I have to pay more.

If you shorten the contractual term then you are committed to the monthly outgoing.

By retaining the current term it allows you flexibility.

Everything being equal the mortgage ends up finally being repaid on the same date.

fiesta04

I would suggest you should have a play around with an online calculator either on here or Nationwide website. You will see then how much you can either overpay each month or reduce the term, that suits you.

F4

sancho

The only thing that makes me want to reduce the term is that saying "I've got 32 years left on my mortgage" sounds like a really long time.

I know we'll pay it off before then as we're over paying, so it doesn't really matter. Think I'll just up the overpayments and then we could always stop if needs be.

sancho

I've looked around and 3.7% seems to be about what others are offering so think I'll go with them

Thanks all

Thrugelmir

sancho wrote: »

The only thing that makes me want to reduce the term is that saying "I've got 32 years left on my mortgage" sounds like a really long time.

Paying off a mortgage is a marathon not a sprint.

The benefit of repaying early comes at the end.

So best to pace oneself.