Overpayment - What would you do?

SOMEONE_3

OT question. Are these forums available through an App too?

JimmyTheWig

SOMEONE wrote: »

Penalty rate on the higher rate deal is 3%. I paid £1800 last year whilst paying £60,000 off

Ok, so this deal has three years to run and the penalty is 3%. That's the equivalent of 1% per year.
The rate is 1.35% higher than the SMR that you will be paying on loan 2 from May. Given that 1% of this is wiped out by the ERCs it does, on the face of it, save you 0.35% a year. That's about 1% over the three years.
Then the revert rate of loan 1 is 1.49% lower than the SMR of loan 2. So if you keep the mortgage for more than 8 months you'll be better off paying the money off loan 2.

So there's your answer. Or, rather, your question.
Do you think you will keep the current mortgage for more than 8 months after May 2017?
If so, pay the money off loan 2. If not, pay the money off loan 1.

It's still probably best, at least for now, to make as many penalty-free overpayments off loan 1 as you can.

getmore4less

SOMEONE wrote: »

Penalty rate on the higher rate deal is 3%. I paid £1800 last year whilst paying £60,000 off

woops I messed up somewhere.

if it is 3% then that changes things.

will need another rethink

edit Xpost , jimmy probably has it(it not quite that simple but close)

SOMEONE_3

Thanks. But doesn't that only apply to the loans and revert rates of today and not what is available to me now.

I agree the current SMR on loan 2 is 1.35% higher than the BMR on loan 1, but on the assumption the BMR will increase within the next 3 years it cancels that out a bit.

Then also, come May 2014, (for example) loan 2 could be moved to a new 3 year tracker product, at 2.29% with a SMR of 3.99% (currently) , and no ERC's. So we're no longer looking at 5.34% versus 3.69%.

Whilst asking for advice here it become obvious to me I have a good opportunity to move loan 2 to a far better rate, and even loan 1 if the balance works out correctly. I was always going to make overpayments of £500 into both accounts in March, April and May this year, so maybe my question has changed a little now. Things have developed in the last 24 hours purely down to the great advice you guys have given me.

Maybe I need to view this dilemma based on something like £95,000 in loan 1 fixed at 5.34% with 3% penalties versus approx £ 61,000 in loan 2 tracked at 2.29%, and then figure out where I should pay the remaining £50,000ish off?

I've just spoken to Nationwide, the guy is going to call me back with some figures for moving either or both mortgages to a 3 yr tracker, with and without 50K taken off loan 1. With no ERCs on loan 2 on that product, it wouldn't cost me anything to overpay that amount. Plus whilst I have the old standard £500 per account per month overpayment allowance now, on these new products it's 10% of the originally borrowed amount per year. Loan 1 was £190K, so that increases my overpayment allowance from £6,000 per year to £19,000 per year :T

One interesting point whilst talking to him. When I called them 6 months ago to make that original 360K overpayment, they said ERCs apply to both products. So there was no benefit in paying it off the smaller loan and I just lumped it off the 5.34% fixed loan 1. He's now telling me that whilst I would've paid 3% fees to exit the loan 2 tracker, I could've moved products to a better rate free of charge under on this Switch&Fix promotion. So the tracker products qualify for Switch&Fix and I have no way of knowing if one of the products back then had no ERCs, which would've saved me £1800. Oh well

JimmyTheWig

SOMEONE wrote: »

Thanks. But doesn't that only apply to the loans and revert rates of today and not what is available to me now.

Yes, I agree. I conveniently ignored that further complication!

I agree the current SMR on loan 2 is 1.35% higher than the BMR on loan 1, but on the assumption the BMR will increase within the next 3 years it cancels that out a bit.

I disagree. Both follow on rates are linked to the base rate, are they not? If rates go up I would expect them to both go up.

Then also, come May 2014, (for example) loan 2 could be moved to a new 3 year tracker product, at 2.29% with a SMR of 3.99% (currently) , and no ERC's. So we're no longer looking at 5.34% versus 3.69%.

At that rate I wouldn't be too worried if there were ERCs or not, especially while you are still tied in on loan 1.
Also are there product fees (arrangement fees, etc) for this move?

Whilst asking for advice here it become obvious to me I have a good opportunity to move loan 2 to a far better rate, and even loan 1 if the balance works out correctly.

Nice one. Remember to include the follow on rate in your calculations with loan 1.

Maybe I need to view this dilemma based on something like £95,000 in loan 1 fixed at 5.34% with 3% penalties versus approx £ 61,000 in loan 2 tracked at 2.29%, and then figure out where I should pay the remaining £50,000ish off?

I agree. In which case you are saving 6.15% over the 3 years by paying it off loan 1 (having taken the ERC hit) which means you'd need to be on the follow on rate for 4.5 years - which is 7.5 years from now - to make it better to pay it off loan 2 than loan 1.
This is assuming that there are no product fees to move loan 2 to the new rate. If there are fees for the lower rate then by paying the chunk off that loan you would, in effect, save yourself those fees.
[The other question becomes what (net) rate can you (or your spouse, if married) get on your savings? You may well be able to beat 2.29%, in which case it would be worth doing this rather than paying off loan 2 and you would need to use the net savings rate when comparing with the rate of loan 1.]

I've just spoken to Nationwide, the guy is going to call me back with some figures for moving either or both mortgages to a 3 yr tracker, with and without 50K taken off loan 1.

Good plan. Let us know what they say.

With no ERCs on loan 2 on that product, it wouldn't cost me anything to overpay that amount. Plus whilst I have the old standard £500 per account per month overpayment allowance now, on these new products it's 10% of the originally borrowed amount per year. Loan 1 was £190K, so that increases my overpayment allowance from £6,000 per year to £19,000 per year :T

If you move both loan 1 and loan 2 to the new rate I don't see what would be special about loan 2 that means no ERCs. If you went for the same product then surely neither would have ERCs. In fact, I'd guess they would be rolled up into a single loan (in addition to loan 3).
If I've got the wrong end of the stick here then the other thing I would check is it the 10% is of the original loan value ever, or the original loan value at the start of the new product.

I have no way of knowing if one of the products back then had no ERCs, which would've saved me £1800. Oh well

Gutting if you could have done, but as you say no way of knowing.

getmore4less

When we get the numbers for the options including all fees then the choices can be made.

remember(if I got it right) you can have all your debt on the base+2% tracker within the 3 year time fram

SOMEONE_3

Nationwide called back but realised they weren’t permittedto discuss switching the main mortgage since it’s based on the BMR and not SMR,so I now have an appointment at my local branch next Friday



Going back to your original assessments, let me fill in thegaps, adjust where things have changed and we can figure out where we are.



I’ll base everything on that 3yr tracker without ERCs fornow, purely because if another lump sum came available I could pay more offwithout penalty



Current situation:



House value £550K-£600K
mortgage £169k

18 years left to run (on all 3accounts)



Lump sum available £50k

Loan 1: £97k fixed until 31 May 2017 5.34% follow on 2.50% BMR (base + 2%) ERC 3%

Currently paying £703 per month

I will be making 3 overpayments of£500 during March, April and May this year.

Redemption fee to get out of this dealand move to alternatve product is £2922 as of today. Overpayment fee for £50Kwould be £1,500 (3%)



Loan 2: £64k fixed until 31 May2014 3.69% follow on 3.99% SMR.

Currently paying £407 per month

I will be making 3 overpayments of£500 during March, April and May this year.

No redemption fees, I’ll let itexpire end of May


Loan 3: £8K 2.5% BMR (base + 2%).

Currently paying £50 per month

I won’t be touching this accountat all, there’s no need to.


Loan 1 options:

A: Leave as is fixed for 3 years and take avantage of theBMR from June 2017. (BMR (2% OVER BASE) was replaced with SMR in 2009. There isno upper cap on their SMR. It’s currently 3.99%

B: Switch to 3 Year tracker, 1.79% over base with no futureERCs. Redemption Fee £2922. No reservation fees, no product fees, nothing dueother than that redemption fee. Follow on is SMR, currently 3.99%



Loan 2 options:

A: Leave as is to end up on SMR in June 2014 3.99%

B: Switch to 3 Year tracker, 1.79% over base with no futureERCs. No reservation fees, no product fees. Follow on is SMR, currently 3.99%

And on top of that I need to figure out what to do with this £50,000

*Above option B’s are for example purposes, there may besomething a little better by the time I meet them next week.

thanks

getmore4less

does option one still have the you can get your overpayments back option?

never sure if this was still available on these older loans or they put an end to it.

SOMEONE_3

Yes, anything I've over paid to date can be borrowed back on Loan 1 (and Loan 2 currently). I don't think that option is available on the new deals, but not 100% sure. Another factor to consider

Something I forgot to answer earlier. The overpayment rules on the new deals are 10% (per year) of the "original" loan total on that property, not just the last total when you switched products. So I originally borrowed £190,000 in 2007 and it'll be based on that. They ignore the £82,000 I've borrowed since, and they don't count the previously mortgages taken on older properties, even if they were all switched in sorts when moving house.

And yes I assume if I moved both mortgages to the same new product it would become one account.

getmore4less

SOMEONE wrote: »

Yes, anything I've over paid to date can be borrowed back on Loan 1 (and Loan 2 currently). I don't think that option is available on the new deals, but not 100% sure. Another factor to consider

Well if you really can get the money back and they don't change that in 3 years.

price up.

switch mortgage 2 to the lower cost tracker for 3 years.

Overpay 1 by £500pm for 3 years then take it back and pay off 2 as it reverts to 3.99% all those 500s are now at base+2%

Still leaves working out what to do with the £50k.