Adding Mortgage Reserve to Mortgage

YORKSHIRELASS

Hi

We have a Woolwich Mortgage and were incredibly stupid a few years back and ran our Mortgage Reserve up to £20k. We are paying this back but slowly as our annual income is fairly low at the moment and we have other debts. The long term plan was to pay off the reserve with an inheritance which we should receive before the mortgage has to be paid back but the timing of this is not guaranteed.

Our outstanding mortgage is £35k with 10 years left, interest rate currently 1.45%. Our house is worth around £180000.

I am thinking that we should just add the Mortgage Reserve to our Mortgage so we know we are guaranteed to pay if off and we will save a fortune in interest. Are there any pitfalls in doing this? I know that we can afford the monthly repayments.

Thrugelmir

Making a plan to repay the reserve makes perfect sense.

agarnett

So the total you owe currently is £55K? As a total amount outstanding on a mortgage against a house worth £180K with still 10 years to go, it doesn't sound too scary so long as interest rates are low and you are reducing it steadily now. As Thrugelmir says, a proper plan to pay off the loan is needed - anticipating inheritance is notoriously difficult to plan-in for most people.

Is that £55K all at 1.45% ? You say you will save a fortune in interest by moving the Reserve debt to the main mortgage ? If the Reserve is charged at a significantly different interest rate then obviously it should be tackled first, but is it?

What numbers have you done to reach your conclusion?

getmore4less

If you try to add the reserve to the mortgage you will lose the rate on the main part.
Unless you have an offset the reserve is at SVR.

Stick the reserve details in a mortgage calculator and that will give the payment needed.

getmore4less

http://www.whatsthecost.com/default.aspx?country=uk

£20k 4.99% 10y. £215pm should do it.
£20k 1.49% 10y. £180pm should do it.

agarnett

The Reserve might well be at the same rate as the main part which at 1.45% could indeed be an offset mortgage. The OP hasn't told us yet and it may not be obvious if they haven't checked lately.

katejo

agarnett wrote: »

The Reserve might well be at the same rate as the main part which at 1.45% could indeed be an offset mortgage. The OP hasn't told us yet and it may not be obvious if they haven't checked lately.

No it isn't at the 1.45% At least not in my case. i might have used my mortgage reserve if it had been at the same lovely low rate of base rate +0.27. However the reserve is at SVR. I had that confirmed by Barclays this week. Since I would only use such a facility for small loans, it is cheaper to use an interest free credit card deal.

agarnett

Barclays / Woolwich arrangements vary on this.

With offset mortgages tracking base rate I read somewhere that the rate on the Reserve is usually the same as the main mortgage.

Non-offset tracker mortgages generally had a lower premium over base rate such as yours katejo, meaning that you by the sounds of it enjoy 0.77% currently on your main mortgage.

1.45% sounds like 0.95% over base which could easily be an offset rate.

Will be interesting to hear from the OP again.

YORKSHIRELASS

Thanks all, sorry for not replying. I have done some research.

There are two types of Mortgage Reserve, ours is not the Offset Mortgage so the rate is 5%. And you are right, we would not be able to add this to the mortgage at 1.45% sadly.

As someone else says £210 a month would pay it off in 10 years. We are currently paying £150 a month so could afford another £60.

We are going to increase the repayments and pay it off that way. It avoids messing about with our original mortgage and it is easy to increase the repayments when we have cleared our other debts. Similarly if something really terrible happened we could stop the payments for a month or two.

Even if interest rates rise we should be OK, we just need to get it cleared as soon as we can.

I thought I would be criticised for running the reserve up in the first place so thanks for being so helpful. We made some stupid financial decisions when we were younger but have learned our lessons and have had some good advice on here.

Thrugelmir

YORKSHIRELASS wrote: »

I thought I would be criticised for running the reserve up in the first place so thanks for being so helpful. We made some stupid financial decisions when we were younger but have learned our lessons and have had some good advice on here.

Although comments often get read as such. Few people actually pass judgement on here. As you've done. The biggest battle is to accept ones own failings. After that life gets so much easier.

getmore4less

Do not overpay the mortgage just pay into the reserve.

I forget where the interest on the reserve goes at that is treated as interst ony.
I vaguely remember it comes of the normal payment which has the effect of underpaying.