Mortgage help please?

Pasty

Hello. Not a mortgage free question unfortunately but I’m hoping someone could give some advice regarding my current mortgage situation. I really don’t know that much about mortgages but I am looking to educate myself.

The background – my partner and I bought our first home 2 years ago costing 130k. We had no deposit so took out a 100% mortgage with the teachers building society. It was a fixed repayment mortgage over 25 years at 7.2%. I believe this is high but at the time we were limited due to no deposit.

The issue – we are paying £810 a month towards our mortgage. This sum is higher than we can afford to pay. I’d like to get this payment down to about £700 a month or lower if I can. However, I’ve read that we would have to pay a fee if we switched lenders before April 2008. Can someone advise me as to the best course of action or do we just have to wait until April next year?

Many thanks

comping_cat

You need to check the terms and conditions of your mortgage - if it says you cant change before April 2008 without paying a penalty, then that will be the case!!!

AnW'sMum

You might be able to change it to an interest only mortgage which could save you up to £150 per month. Your lender may make a charge to do this, if you took this course of action you will only be paying interest and not the capital so it should only be considered for the short term.

Alternatively you might be able to take a payment holiday (some lenders will let you miss up to 6 payments) which would give a bit of breathing space. This would extend the term of your mortgage and would be subject to the lenders agreement.

Or you might be able to extend the term of your mortgage to reduce the monthly payments and when your income permits in the future you make overpayments which would reduce the term again.

Speak to your lender about the options and costs open to you.

The other area to look at is cutting back elsewhere on your budget to see if you can make up the difference between £700 and £810.

Hope that all makes sense!

Martinslovechild

There are a lot of 'ifs' here, so bear with me...

If your house has accrued sufficiently in value, it may be possible to pay the early repayment fee and move to a cheaper deal elsewhere providing that there is a minimum of 5% equity in the property (i.e. it's worth at least 5% more than the amount currently outstanding on the mortgage). The property would therefore either have to be worth more than £136,500 or the amount outstanding on your mortgage (which will have reduced based on 2 years worth of payments) will need to have reduced sufficiently. Based on a rough-and-ready calculation, you currently owe approximately £126,000 (source: WhatsTheCost.com).

You'll then need to sit down and do the maths.

For example:-

Let's assume that your property is now worth £138,000, you owe £126,000 and would be required to pay a fee of 2% of the outstanding balance to move to a different lender.

Equity = £138,000 - £126,000
= £12,000

Fee = 2%
= £126,000 * 0.02
= £2,520

'True' Equity = £12,000 - £2,520
= £9,480 (or 6.8%)

Therefore, in this example, after costs you would have a deposit of 6.8% against a new mortgage. This would entitle you to a much larger range of mortgage deals.

However - you also have to factor in the savings from the new mortgage.

Let's assume that you apply for a 23-year deal which initially charges 6%. The figures now look like this:-

Mortgage = £126,000 over 23 years
= £842.75 per month

This is obviously more than the £810 that you're currently paying, but looking at the figures for your existing deal (7.2% repayment over 25 years), it's working out at £935 per month (source: WhatsTheCost.com) so I would therefore question whether you have a Repayment mortgage or Interest-Only (WhatsTheCost calculates the monthly cost of Interest-Only at £780, much closer to your £810). You'll need to check your original paperwork to verify this.

However - assuming that you were paying £935, a new payment of £843 is a substantial saving each month based on this. You'll need to do the actual maths to determine if this option is going to be feasible.