Re-Mortgageing Question

G'ster

Hi there,

My first post so bare with me! :rolleyes:

I'm looking for some advice about re-mortgageing, specifically about arrangement fees v's intrest rate.

I was made redundant a couple of years ago and decided on a career change, so I'm currently back at university with 1.5 years left of my degree.
So i'm a full-time student and work part-time earning about £5500 p/y, on top of this I take the full student loan of £4300.
Because I've got a low income etc. i'm guessing I won't be able to go to another provider to re-mortgage. But I need to keep mortgage payment as low as possible, so I've asked my current provider to see what fixed rate offers they have. I've asked for 2yr fixed rates as I'd like the security till I finish at Uni.

Anyway, details are as follows:-

Outstanding Mortgage £63.5k 19yrs, property value circa £160k

Current Mortgage with RBOS is a 2yr fixed rate 5.1% which finishes on 01/05/07 - £435 p/m

Offers available:-

2yr fixed 4.99% till 30/06/09 £999 product fee

2yr fixed 5.19%, £499 product fee

2yr fixed 5.45%, £499 product fee + no legal/valuation fee

2yr fixed 6.55%, No fee + no legal/valuation fee

My question is, which is best taking into consideration that i have only a little income? What sort of effect will the product fee have on my re-payments and on the longer term picture? Does anyone know what legal/valuation fees are likely to be for a remortgage with the same provider?

Also, I have some savings (about £10k redundancy money) in a 5.25% CashISA, should I reduce the mortgage or keep it here?

Thanks in advance for your help guys!
Cheers, G.

snarffie

The first thing to do is ask the mortgage advisor at the bank to tell you EXACTLY how much you will pay over the course of the two years for each product IN HARD CASH.

Then you have a basis for making a decision as to which mortgage to go for. Although these various 'offers' are touted by banks as giving customer choice, I personally find these various 'offers' to be confusing and ulimately unhelpful. Unless you get the bottom line from the bank, it's difficult to choose the best option for you.

I wouldn't use your savings to pay off a chunk of the mortgage whilst you are a student, but the savings will be useful if the £999 product turns out to be the best option to you as you will be able to pay it upfront.

MarkyMarkD

The fact that you are being quoted deals with "no legal/valuation fee" means that you haven't asked them the right question.

You have been told about their new customer deals.

You need to know what deals are available to existing borrowers which may very well not be the same (I don't know whether RBS have different existing borrower deals).

The reason this is obvious is that there are NO legal or valuation fees involved in a product switch - NOT a remortgage as you cannot remortgage with the same lender.

As a general rule of thumb, it's not worth paying a product fee on a loan as small as £60k or so, unless it's a small fee. But because the products you quote don't sound like existing borrower products, this general rule doesn't hold true.

Assuming that the deals you have quoted ARE the relevant costs for new borrowers, you can easily enough evaluate the two year cost in a rough and ready way. You can ignore the balance falling as it won't fall much over two years, and just assume a constant balance of £63.5k.

So the product costs are:

2yr fixed 4.99% till 30/06/09 £999 product fee = £6,337 + £999 = £7,336.

2yr fixed 5.19%, £499 product fee = £6,591 + £499 = £7,090.

2yr fixed 5.45%, £499 product fee + no legal/valuation fee = irrelevant as legal/valuation fees don't apply to your circumstances.

2yr fixed 6.55%, No fee + no legal/valuation fee = £8,318 = as above, pretty irrelevant as fees wouldn't apply to your circs.

Hope that helps - come back with the existing borrower deals if they are different.

Your point about not being able to remortgage elsewhere is very definitely right given your circumstances, and you are right to be looking at the deals available from your existing lender.

G'ster

Thanks for the replies guys!

MarkymarkD - My fault, I was reading the small print for the 4 offers and saw that 2 of them mentioned the bank paying legal/valation fees, whereas the other 2 didn't, I wasn't sure whether I would be paying them as an existing borrower, so thought i'd better mention them...but all 4 deals are available to new borrowers and existing customers too...So it looks like the 5.19% with £499 product fee is the best deal overall? The last 2 years with RBS on 5.10% my mortgage has been going down about £1800 per year, will this effect it?

I was reading another thread on here where someone got the fees reduced to £199 on the 5.19% offer with RBS, just by asking nicely, so I'll give that a go too.

Got a meeting set up for tomorrow with the bank, so just wanted to be fore-armed with you guys opinions so I'd know what to go for.

Snarffie, yeah I agree, I think i'd feel safer with the redundancy money in an acessable place so I have the security of being able to get to it if anything unexpected happens, i'll defo ask for the bottom-line cash payments etc. tomorro too, thanks


Thanks again,
G.

bluep

G'ster - my deal was due to expire on the the 1st of May too - I phoned their retention department on 0800 056 7732 and that's where i got the 5.19 offer with the deal on the arrangement fee (you have to be really really nice to the person though as we had quite a chat afterwards and I said "I bet if someone's a right nasty, you tell them you can't drop the fees" and she laughed and said that if a customer was particularly nice then she did her best).

The reason we have stayed with RBOS so long is until last year I was also a student who had returned to post-grad studies (when we originally took out the mortgage, we were both earning enough), so our salary multiples were way too low to remortgage elsewhere but RBOS didn't know that!

Why don't you consider taking the 5.19 deal on an interest only basis for the next 2 years until you finish studying? The reason I suggest this is that it allows you to overpay by up to 10% on a monthly or annual basis, so you would have a lower minimum payment per month and then could chose to "overpay" up to your original level of repayment depending on how your finances were going.

I know people will go "ooooh interest only...never a good idea" but if you seriously need to lower your repayments until you finish your degree and you have a huge chunk of equity in your house already....it might be worth thinking about as an alternative to other types of debt i.e. credit cards when other unforseen expenses arise.

G'ster

Thanks Bluep,

I've got a meeting with the mortgage advisor at the bank tomorrow, do you think I'd be better trying to see if they'll reduce the fee, or wait till after the meeting and phone the retention number? I'm guessing maybe the retention guys have more leeway with fees? Also, I'm guessing I shouldn't tell them I'm no longer earning the same unless they ask right?

I've been with the RBOS for 6 years now (3 x 2yr fixed rates) and I guess I've paid the product fees the last 2 times without thinking about it, maybe that'll help my cause!

I'm generally a pretty nice person :A (exept when someone tries to get one over me!! :mad: ), So hopefully I'll be able to charm 'em into lowering the fees..

I'll let you know..

Thanks for the number and advice
Cheers, G

bluep

yep, don't mention that your salary has dropped at all - you are no more of a risk to them as you already have your mortgage with them so they are not concerned with any kind of proof of earnings status unless you are asking for a futher advance.

This all counts as a "rate change" or a "product change" to them rather than strictly a remortgage.

Why not ask the mortgage advisor at the bank and if they say no, try the retention department LOL - nothing to lose. I find it much easier to be cheekily charming on the phone than in person...

All I said was "hmm...£499 is a lot of money to pay as a fee" then she said "we can add it onto the mortgage so you wouldn't have to pay it up front" then I said "I see...is there any kind of deal you could do on the arrangement fee for me, I'd be very grateful if you could see if there was" and she said "ok, well I can take it down to £199 but thats the lowest I can go". I wasn't expecting her to go that low without even taking a breath to think about it so I was happy with that!!

I wouldn't mention anything about paying arrangement fees before - they might read that as someone who would expect to pay some sort of fee as they have done so in the past. Also, just try and build rapport with the person right from the start - I usually say something about shame they have to be in a call centre on such a nice day and how I used to work in one and don't you get some right nitwits on the phone calling up! This usually makes them laugh and they are relieved that you aren't going to be a difficult customer (every call centre operators worry each time they pick up the phone...that it might be a nightmare customer)...

MarkyMarkD

Good comments, bluep. Changing payment method to interest only may incur a fee (it normally does) and then another fee to change back to repayment, so I'm not sure I'd recommend that unless the OP is really going to struggle to meet the payments.

Re the OP's point, the rate of reduction on the balance shouldn't change significantly due to a change of rate, as long as you stick to the original term.

bluep

Thanks MarkyMarkD.
The reason I mentioned about the interest only is becuase we are pretty much in exactly the same situation as G'Ster and have opted to switch to the interest only until I qualify as a chartered tax accountant next year and my daughter goes to school in 2009 (woohoo no more childcare payments!). The £199 arrangement fee was all that needed to be paid, the fixed deal is only for 2 years anyway and we are planning to overpay to the point that it is the same as a repayment mortgage every month that we can...so all it really does is give us £200 flexibility each month by lowering our minium monthly payment. I'm happy with keeping it at an interest only mortgage and overpaying as much as I can in future years up to 10%.

firesidemaid

well. i'm not very happy with rbos at the moment anyway - but i'm even less happy now that someone else managed to get their arrangement fee reduced!:mad: (although i am very happy for you)!

they said there was no way they could budge on that! although i will use that info to add to my growing complaint letter.....

but, as i was just changing over mortgages with them i also did not pay any legal or valuation fees.

good luck - let us know how you get on.

bluep

sazzacat, if it's anything like it used to be when I worked for a well-known mobile phone contract provider, it was a case of "computer says no". i.e. our systems would work out exactly how profitable a customer was, what their credit history was like, what we projected they would spend in the future and how much we wanted to retain them...the clogs would whirr for a minute and then pop out exactly how much negotiating room for manoever the sales or retention team would have.

It may be that as we have large amounts moving through our current account - my work expenses can be £2-3k some months going in and out, that they could change the fee level as they thought we would probably switch our current account elsewhere if we moved mortgages (quite right too).