mortgage advise please

afy12

Hi there,
I am planning to buy a house with fianc!e, both have a joint income of £2,900 / £3,300.
I want to go for a repayment mortgage over a shorter period so that I can pay it off asap so I am paying less interest and can be mortgage free.
I already have my deposit for my house and am waiting for full deposit from fianc!e before I start to property hunt properly.
Anything I earn from now until next year Sep 2014 will go towards my wedding. And anything I earn after that for the next 2.5 years will be to pay off family loan.
My fianc!e is happy to pay all bills and mortgage whilst I save and pay back family loan.
Looking at house hold expenses for people of 2 (and may be a little 3rd) it may cost us roughly £600 per month.
I have looked at the different types of mortgages and ideally would like to repay as much as I can each month to reduce what I will owe to the bank. E.g. if I go for 8 years repayment at 2.39% taking a loan of maximum 50k then my mortgage would be about £600 (I am looking to loan about maximum 50k, it may end up being less). Which would sum my total house hold income to about £1,200.
After 2.5 years I will have paid family off and my income will be free which I can either save up and pay more towards mortgage or other things I wish to spend on.
I am very financially organised and can save myself 17k-18k a year as my fianc!e will be paying all expenses, I have calculated my other expenses in this.
Now I would appreciate advice on the mortgage I should go for, the example I have given is of a tracker 2.39% over 8 year period.
First question on the bank website for a mortgage it says below,
if you’re going for a variable type why do you have to specify how many years, can someone explain please?
4. What initial product period would you like?
2 years
3 years
5 years
6+ years

Also I find tracker appealing as I am under the impression that the bank of England’s rate is less than the actual banks rate where as standard variable is bank of England’s rate +the actual banks rate. Is this correct?
The only thing that worries me is that bank of England’s rate can go up anytime (less likely at the moment but can happen anything is possible in this economic climate), so if this happens I am already paying £600 per month this can double and £1200 would be difficult to pay.
How does standard variable and tracker differ as in pros VS cons? And which one would be better for me. (I have read the mortgage guide but am now not sure which one is right for me in the situation where I am not certain because of future interest rate increase).
I have looked at the two other mortgage types that you pay back whenever you want whatever you want but I will not be able to pay any extra back until I have paid family back for 2.5 years and the interest rates tend to be higher on these types, and was only considering tracker because I can estimate I can pay £600ish a month over a less period, and that then eliminates the fact that even if I can only pay 10% or less back a year it doesn’t matter because I would be repaying more on a monthly basis.

Please advise and give opinion, all help is appreciated.

kingstreet

Take the mortgage over a longer term. This will give you a lower contractual monthly payment. Make regular voluntary overpayments upto the amount you wish to pay to bring the balance down faster and to pay off the mortgage within your desired timescale.

If you have unexpected costs, you can vary, or suspend your voluntary overpayments and pay only the contractual amount - the minimum.

If rates rise, you simply reduce the voluntary overpayment so the total is still the same as what you were paying before, if you can't afford to pay more.

For example, let's say the cost of a mortgage is £1,000 per month. The mortgage will be paid off in 10 years.

The cost of the same mortgage over 20 years is £500.

You take the mortgage over 20 years. You pay a contractual minimum of £500 and make voluntary overpayments of £500. So, you are paying the same as you would for the 10 year mortgage and will pay it off after 10, if you make that payment for the whole term.

Let's say interest rates rise. The new contractual minimum is £600. You can still overpay by £500 to keep to your 10 year target, or if you can only afford the previous payment, you now voluntarily overpay by £400 but it may mean it takes a little longer than 10 years to be mortgage-free.

afy12

Hi Kings street,

So your saying that there are mortgages out there that allow to pay mortgage off before the actual agreed period this is possible. So say my mortgage was over 15 years and I was allowed to repay 10% back for each year plus my monthly mortgage and I managed to repay the loan within 8 years, I can actually do this?

so it would be better to pay less monthly spread across a longer repayment period and pay voluntry at the end of each year? However would this not accure more interest for the bank if it is done at the end of each year?

afy12

i would also like to know, if mortgage application is made and you get charged application fee say £995 and the bank sends out a suveyor and realises that there is damage in the property which does not make it worth the loan/house price and rejects the request due to this reason, does this mean you loose the application fee + suveyor fee?

Let_Us_See

Only the valuation/survey fee. I believe you are confusing application fee with lender's arrangement fee, that is either paid on completion or added to the mortgage. In either case, if your application does not go to completion then the fee is not applicable.

ndf9876

afy12 wrote: »

i would also like to know, if mortgage application is made and you get charged application fee say £995 and the bank sends out a suveyor and realises that there is damage in the property which does not make it worth the loan/house price and rejects the request due to this reason, does this mean you loose the application fee + suveyor fee?

I don't know if all lenders are the same, but my up-front booking fee was refundable if the valuation survey wasn't up to snuff (we got a free valuation so I can't comment on that side of things).

However, it was also made clear that if we (as buyers) chose to pull out for whatever reason, the fee would still remain payable.

Yorkie1

afy12 wrote: »

so it would be better to pay less monthly spread across a longer repayment period and pay voluntry at the end of each year? However would this not accure more interest for the bank if it is done at the end of each year?

missfitsz wrote: »

I'm no expert, but I would love to find out more on how this voluntary repayments can help as it will accure more interest as you said. Any thoughts anyone? I'm a newbie looking to buy a house as well

It is never a good idea to over-stretch yourself if you don't have to. That's why it is wiser to take a slightly longer mortgage term - it allows the flexibility of overpayments in good times, without getting you into difficulties if high standard payments can't be made in harder times.

The vast majority of mortgages calculate interest on a daily basis - i.e. on the amount of capital owed on that day, each day.

Any overpayment immediately reduces the capital amount owed from that day forward, and so the interest due is also reduced. Therefore, if you leave it until the end of a year to make an overpayment, then the interest charged up till that date is on the unreduced capital amount owed.

Also, if the overpayment limit is stated per month (as opposed to a % of the amount owed at the start of the calendar year) then you may not be able to overpay by the full amount you have in mind at the end of the year because you're limited by the monthly amount.

kingstreet

afy12 wrote: »

Hi Kings street,

So your saying that there are mortgages out there that allow to pay mortgage off before the actual agreed period this is possible. So say my mortgage was over 15 years and I was allowed to repay 10% back for each year plus my monthly mortgage and I managed to repay the loan within 8 years, I can actually do this?

so it would be better to pay less monthly spread across a longer repayment period and pay voluntry at the end of each year? However would this not accure more interest for the bank if it is done at the end of each year?

My post referred to making overpayments to make the total paid each month equal to the contractual monthly payment over a shorter term.

I didn't mention overpayments made annually. This would depend on the interest calculation method of your mortgage, as Yorkie has said.

Daily interest - make overpayment any time and get instant reduction in interest. Annual interest - make overpayment only a few days before anniversary date so lender doesn't get benefit of your money without passing the benefit on to you.