5 year plan - re mortgage question

freshleylhn

Hi Mortgage free experts! I will soon be able to re-mortgage from my current 5 year fix with Natwest at 4.something % from 2009. During the 5 years I have overpaid quite a bit and will now be down to 80k by the time of re-mortgaging.



I would prefer another 5 year fix because although I aim to have the mortgage paid in 5 years :beer: I also want long term security in case of redundancy etc. The current payments would be pretty low if I wasn’t overpaying hugely each month so I figure if circumstances changed I could just drop the monthly overpayments.

Luckily I have pretty much always been able to pay the full 10% overpayment limit each year, but now that the total is getting smaller that 10% is obviously a lot smaller too and I could afford to pay more off each year.

So my question is: assuming I get a 5 year fix at c.3%, would there be a benefit in shortening the mortgage terms to 10 or 15years instead of the 20 years it will be if I carry on as is? I have done the sums and if I went to 10year remaining term then the actual monthly repayments, fixed for 5 years, would be the same as my current monthly repayment which includes a large overpay. Then I could also overpay the 10% each year.

Or is the difference between keeping the mortgage at 20 years term not that much re capital payments?

Is there a calculator that would help with this? the one I found from these forums didn’t quite hit the nail on the head for this calculation.

Thanks very much for any advice!!

HelenDaveKids

I paid £20 to nationwide to reduce my term, the rate wasn't altered but obviously paying significantly more each month. Made it possible to op what I wanted to op. Hth

blackste

I dont believe there is any real difference in what your thinking. It may be pounds, due to rounding up over time. As you talk about a longer term security, in case of redundancy, go for the longer term, with the lower minmum payment, and overpay like hell. If you do lose your job, you can drop to the lower payment, until you find new employment.

quicklee99

How about an offset for your next mortgage as that would be more flexible, you can effectively overpay (have in savings) as much as you like. Sure offset mortgages might not give THE very lowest interest rates but it would allow you to o/p what you want. You can't have your cake and eat it

Happier_Me

I'm a fan of offset mortgages also. The rate is usually a little higher but if you already have some savings then you will pay interest only on the difference between the mortgage and your savings amount, effectively bringing the rate down.

My financial advisor suggested (5 years ago now so things may have moved on a little) that an offset is financially worth doing if your savings amount to 20% or more of your mortgage balance. So that's £16k for you, although having had more traditional mortgages as well as an offset, I would consider an offset even if my savings fell below this ideal. You could keep your term at 20 years (which secures your low monthly payments) and choose to overpay as much or as little as you want each month. You are in complete control of what you pay and when you pay. My offset keeps my over payments in a separate reserve so I can access them if I need to. Or you can choose to save into an offset savings account and pay a lump sum off your mortgage when you want to.

freshleylhn

Thanks everyone for your replies :j

I hadnt even considered an offset mortgage, which i will look into now. I will have nearly 50% of mortgage in savings so sounds like i could really benefit.

my plan was to do another 5 years then pay the remainder in lump sum after that, but perhaps its possible to be mortgage free earlier with an offset.

thanks again!

CKhalvashi

freshleylhn wrote: »

Thanks everyone for your replies :j

I hadnt even considered an offset mortgage, which i will look into now. I will have nearly 50% of mortgage in savings so sounds like i could really benefit.

my plan was to do another 5 years then pay the remainder in lump sum after that, but perhaps its possible to be mortgage free earlier with an offset.

thanks again!

Offset IMO sounds a good option for you then.

CK

Hurdler

Happier_Me wrote: »

I'm a fan of offset mortgages also. The rate is usually a little higher but if you already have some savings then you will pay interest only on the difference between the mortgage and your savings amount, effectively bringing the rate down.

My financial advisor suggested (5 years ago now so things may have moved on a little) that an offset is financially worth doing if your savings amount to 20% or more of your mortgage balance. So that's £16k for you, although having had more traditional mortgages as well as an offset, I would consider an offset even if my savings fell below this ideal. You could keep your term at 20 years (which secures your low monthly payments) and choose to overpay as much or as little as you want each month. You are in complete control of what you pay and when you pay. My offset keeps my over payments in a separate reserve so I can access them if I need to. Or you can choose to save into an offset savings account and pay a lump sum off your mortgage when you want to.

I remember at the time of buying my extremely irritating ex BF rambling on about his 6-fig salary and his brilliant offset deal and how I was silly not to be considering it against a tracker, but I didn't have the savings to loan ratio that you describe which makes sense.

I was chuckling a little when the economic crisis hit and my tracker rate plummeted and I suppose now if I was forced to remortgage I would have enough to use it sensibly ... So definitely something to keep in mind/in reserve if I ever need to remortgage.

Great advice - thank you

freshleylhn

hmmm, I have done the sums with the Natwest offset calculator and does look quite good. ..But... I am very risk averse so don't like the fact that the interest rate could (will!) go up with bank rate on an offset.

interesting comparisson of the different terms using the MSE calculator:
80K 20 Year 10% OP yearly
£447 per month regular payment
Years
0 80,000
1 68,812
2 58,428
3 48,789
4 39,842
5 31,538
6 23,829
7 16,674
8 10,033
9 3,869
10 0

80K 15 Year 10% OP yearly
£556 Per month regular payment
Years with 10% OP/year
0 80,000
1 67,490
2 55,878
3 45,100
4 35,096
5 25,810
6 17,190
7 9,189
8 1,763
9 0

80K 10 Year 10% OP yearly
£776 per month regular payment
Years with 10% OP/year
0 80,000
1 64,814
2 50,718
3 37,634
4 25,489
5 14,217
6 3,753
7 0

so by changing term to 10 years i could pay off mortgage in 6 years with the same 10% overpayment per year but i would lose the flexibility of dropping monthly payments to £447 if necessary.

i guess i will put these facts to my better half for her input then make a decision. interestingly the 5 year fixes from Natwest have just gone up 0.10% damn :mad: