Inherited a house, what is for the best?

Retro82

duchy wrote: »

So you could overpay at the rate of £500 a month without penalty ?

If you did make one big down payment -how much would the fees be -and would the interest saving offset the fees? If you have to move to a new product to do so-what would that do to your repayments ?

Don't assume something will be more (or less) check.

Yes, overpayment by £500 incurs no penalty at all. And the monthly payment comes down accordingly (though obviously not substantially).

Paying off half the debt incurs a £4000 penalty but the monthly repayments more than half!

Paying off 1/4 of the debt has a £2000 penalty and, surprisingly, knocks around 25% off the monthly repayments.

Within around 10 months, both of these penalties would have been 'saved back' from the drop in our monthly payments

Retro82

Herzlos wrote: »

Exactly. You need to consider the fees compared to the savings. Even if the fees are a £9k, (3% of mortgage), you'd save approx £7800/year in interest by overpaying by £150k, and the fees would presumably break you out of the contract allowing you to look for a new rate at 33% LTV instead of 66% LTV so allowing you to get the best rates.

Obviously pay off anything else before the mortgage though - any credit cards or loans as they'll be a higher rate.

Then you can still upgrade in a few years with £150k (+ saved interest) more equity.

We're fortunate (or savvy, hardworking) to have no debts outside of our mortgage (except student loan). Any credit cards are on 0% deals or paid in full every month

Those penalties keep us within the same product so we'd still be waiting until the end of the three years to shop around

Gwhiz

Never underestimate the emotional wellbeing that comes from being mortgage free (or having a small mortgage in this case).

People often look at this from a purely financial point of view; it's much more than that.

Retro82

Gwhiz wrote: »

Never underestimate the emotional wellbeing that comes from being mortgage free (or having a small mortgage in this case).

People often look at this from a purely financial point of view; it's much more than that.

I completely agree. The head-space it would bring. Although, as I said, we would be planning to sell in a few years time and our next move in this area would almost certainly involve some kind of largish mortgage. But we'd always have had that time before!

Mojisola

If you can pay off the mortgage but continue to put into savings the amount you were paying for the mortgage, you'll build up a nice nest-egg.

jennifernil

I would be making the maximum overpayments but keeping the regular monthly repayment the same. If you reduce the regular payment, you are not in effect making such a high overpayment. I assume your lender would be OK with this? Most we have used were.

Interest rates are likely to go up so the more you pay off now, the better.

But I would baulk at paying an ERC, rather keep the cash just in case I needed it!

However, savings rates are mainly lower than 3.9% , so it makes no sense to save rather than repay if you have done the sums correctly and you would actually save more on the mortgage interest than the ERC???

If you decide against a large capital repayment, with the rest of the money, you could set up a total of 6 sole/joint TSB Classic plus accounts which would be £12k@ 5%, and 3 sole/joint Club Lloyds for £15k@ 4%.

Also 3 Club Lloyds monthly savers allowing £1200 per month to be saved @4%.

You could also stash a total of £600 pm into 2 FD savers @ 6%.

Santander pay 3% on up to £20k, I presume you can have an account each, and BOS still do Vantage accounts so a total of 6 of those would pay 3% on £30k.

There are several other interest paying current accounts.

These are all instant access, so easy to get the money if/when you need it, or to move it into ISA or savings accounts if rates improve.

Retro82

jennifernil wrote: »

I would be making the maximum overpayments but keeping the regular monthly repayment the same. If you reduce the regular payment, you are not in effect making such a high overpayment. I assume your lender would be OK with this? Most we have used were.

Interest rates are likely to go up so the more you pay off now, the better.

But I would baulk at paying an ERC, rather keep the cash just in case I needed it!

However, savings rates are mainly lower than 3.9% , so it makes no sense to save rather than repay if you have done the sums correctly and you would actually save more on the mortgage interest than the ERC???

If you decide against a large capital repayment, with the rest of the money, you could set up a total of 6 sole/joint TSB Classic plus accounts which would be £12k@ 5%, and 3 sole/joint Club Lloyds for £15k@ 4%.

Also 3 Club Lloyds monthly savers allowing £1200 per month to be saved @4%.

You could also stash a total of £600 pm into 2 FD savers @ 6%.

Santander pay 3% on up to £20k, I presume you can have an account each, and BOS still do Vantage accounts so a total of 6 of those would pay 3% on £30k.

There are several other interest paying current accounts.

These are all instant access, so easy to get the money if/when you need it, or to move it into ISA or savings accounts if rates improve.

I think I'm basically going to split the difference. Interest rates going up and the psychological well being associated with a lower mortgage make paying off a large amount of the debt now feel very worthwhile, even with the high ERC.

But keep enough back to do some home improvements that should also add value and do some proper saving.

The lower monthly payments means we'd also be able to add to those savings.

jennifernil

If you are on a repayment rather than interest only mortgage, remember that what you save on the monthly payment is not all interest.

You need to look at whether you save more in interest by repaying than the current interest minus the interest you could get by saving the money.

Your mortgage interest rate is fixed meantime, so any upward movement in rates would only add to savings interest received.

When your current deal is up, you can seek a new deal and also repay capital by taking a lower mortgage if you are not moving.