End of fixed term mortgage

janet_oggy

I have been in to the Santander bank today to pay a cheque into my account, and the counter assistant tried to persuade me to change to Santander's 123 Current account by extolling the virtues of said account, and tempting me with what appears to be a reasonable amount of cashback. Whilst listening to her I realised that my fixed term mortgage deal with the Barnsley building society comes to an end at the end of March, and this got me thinking as to what to do then. We are currently paying £667 per month on a repayment mortgage and when the fixed term expires,I anticipate that we will owe approximately 57k. I can retire in just over 6 years, and I believe that there will be approximately a £14k shortfall in the mortgage which I plan to pay off with part of my lump sum on retirement. When I remortgage I am also considering borrowing a bit extra (6k ??) to put towards replacing my car.
Basically I would like to reduce my mortgage payments as we have one daughter at University and another just about to start college, and my other half doesn't earn a great deal, so consequently there is not a lot of spare cash left at the end of every month.
Would I be better off going for a low repayment mortgage thereby increasing the amount outstanding when I retire, which I can then pay off from my lump sum, or should I continue with a mortgage similar to what I am on now, and if so can anyone advise who the best mortgage providers are at the moment ??

kingstreet

A couple of months before the fix ends, you need to establish;-

- the natural follow-on rate for your current mortgage
- the customer retention products your lender may offer you
- the remortgage options for moving to a new lender.

Make sure you factor-in any transfer costs and work out which is the best route for you.

janet_oggy

Thanks KS...what are your thoughts on my proposals to borrow extra to replace the car, and also for paying a lesser amount for 6 years and then paying off the balance ??

kingstreet

These are things you need to consider at the time when you have the rate information. TBH the things you say are somewhat contradictory. You want to reduce your costs, but are considering borrowing more.

Obviously, adding to long-term secured debt for short-term issues such as car purchase will result in more interest being paid. However, this can be mitigated by overpayments, perhaps the difference between your actual payments and those you'd make for a short-term personal loan.

I would suggest going for the longest term with the most affordable monthly payments. Make higher payments by voluntary overpayment, so these can be paused if any exceptional expenses occur.

You appear to be suggesting part of your mortgage is interest-only. Many lenders no longer offer this facility, so you'll need to be careful if you do decide to remortgage. You may end up having to take the whole mortgage on repayment - unless you have a more formal repayment method than your retirement lump sum.

janet_oggy

KS...sorry if I confused you...the current mortgage is a repayment mortgage..none of it is interest only.

I am just trying to get the best deal I can when I come to re-mortgage in 3 months time. As I have said above, I am considering borrowing a bit extra to replace the car, and am wondering if adding 6k to the mortgage is the best way to do this ?? (Can't really afford a bank loan).
Also I am wanting to know if I would be doing the most cost-effective thing by getting a long term mortgage (10/15/20 years) which would obviously reduce my monthly payments, and then pay off the balance in 6 years from my retirement lump sum ??

janet_oggy

Anyone got any thoughts ??

bigadaj

Why do you have a shortfall ona repayment mortgage?

Using a pension lump sum is legitimate for paying off a mortgage, but this will obviously impact your retirement income, either by reducing the money available or by reducing the annual amount you could generate from a larger lump sum by annuity or by drawdown.

Also not sure what you mean by a low repayment mortgage, might be worth you discussing options with A broker. You seem to be indicating that you wat pay less now, and the only easy way of doing this is to extend the term to reduce payments. However you will be subject to scrutiny if this takes you past norm, retirement age which could be mitigated by the pension lump sum.

Eellogofusciouhipoppokunu

How large is your pension? If your pension and your husband's pension are forecasted to be large enough to provide you with a comfortable retirement income, after you have withdrawn the 25% tax free lump sum, then I'd say it was a sound idea to use your pension this way.

However, if the pension sums don't add up then I'd continue working until the mortgage was totally paid off. While it's nice to help your kids through Uni, you have to make sure that you don't beggar yourself to do it. All you'll then do is become a burden on your kids in the future.

janet_oggy

Thanks for the replies people...the reason for the shortfall is that I can retire from my current job after 30 years of service - at 53 years of age - in February 2019, and our current mortgage deal runs until 2021, ,leaving a shortfall of approximately 14k I believe. My lump sum is projected at being in excess of £130k, so obviously there will be more than enough to pay off the shortfall on the mortgage.
What I would like to do now is get a 60-65k mortgage over say 15 years which would obviously reduce our monthly payments, and then pay it off in full when I retire from my current job (although I will be looking at getting another job when I do retire !!)
Hope this helps.

P.S. - I am the husband :D

janet_oggy

Went into local Santander yesterday and discussed my proposals with one of thier mortgage advisors, and although they are happy to do the deal, I basically have to give them some sort of promise that I will be getting another job when I do retire from my current one, even though my lump sum will cover the projected shortfall at least 5 times over !!!
Looking at the 5 year fixed term deal at 3.69% with no fees, free valuation and legal fees ??
Probably looking at switching my current Santander account as well to a 123 Current account, and will then get cashback on mortgage as well as other standing orders/bill payments....could be around £200 p.a. !!

kingstreet

Frankly, there are much better rates available that will save you a lot more than £200 a year. Hell would have to freeze over before I'd put my clients' business with them.