Overpayment

CariadBe40

Hi

We are trying to re mortgage, currently on interest only on a variable rate.

We want to switch over to a fixed re payment however we are finding this difficult because lenders are turning us down on affordability.

They will however agree to a fixed rate on interest only.

Our new plan is to get a fixed rate interest only use the money we save on that to firstly pay off the credit cards and then start making over payments on the mortgage.

Would this work or would it be better to put this into savings so at the end of the fixed rate we can pay off a lump sum?

getmore4less

Look up snowballing

It's all about the rates of the debts.

What rate is you current mortgage
What rate can you get
What rate are the other debts.

With other debts going repayment is fairly the right thing to be trying to do.

CariadBe40

Current rate is 4.74% variable

Looking at 3.19% fixed for 5 years

Really want to be on repayment but banks won't let me saying I can't afford monthly payments even though we can.

No idea what the rates of my other debts are.

engineer_amy

Once you are on the fixed rate, just make sure you are aware of any overpayment limits with the lender. My first fixed rate deal only allowed overpayments of £1000 in any calendar year, then fees would be charged. I can't remember what the fees were, but I think they were significant enough to discourage any more than the £1000.
Some lenders allow up to 10% of the outstanding capital in a year

CariadBe40

That's what I'm worried about we would be looking at apprx £400 a month so £4800 a year

Might be better to put that in a savings account then pay a lump sum off at the end of the term.

engineer_amy

It does no harm to ask the question to the lender to find out their policy on max repayments.

Most calculate interest daily on the total outstanding capital, so I believe it would be more beneficial to make overpayments earlier. On a repayment mortgage it certainly does, you can see the proportion of interest dropping compared to the capital element as you make overpayments. But hopefully someone with more experience of interest only can advise on the timing of overpayments and their effect

jamesd

Interest only is better than repayment, so don't worry about that aspect. with interest only you get to choose how much capital you pay and when to pay it, so you can drop at times of financial stress and increase when you have plenty of money. You can also use a mortgage calculator to work out what the monthly repayment would be on repayment basis and try to average that total monthly payment, subject to any limits on extra payments.

Which lender wants you on interest only? It's good to know which ones are willing to use interest only these days!

You will do better not overpaying if you can make more than 3.19% on the overpayment money. That's easy to do with a broad range of investments, including P2P.

CariadBe40

It's Santander who we are currently with.

I have no clue on investments at all I don't even know what you mean by p2p

All I know is I have a huge amount of debt and mortgage and we are trying desperately hard to start paying it off and securing our house before interest rates start going up.

Being grown up is no fun at times

getmore4less

CariadBe40 wrote: »

Current rate is 4.74% variable

Looking at 3.19% fixed for 5 years

Really want to be on repayment but banks won't let me saying I can't afford monthly payments even though we can.

No idea what the rates of my other debts are.

Find out what your other debt are how big and how much they are costing you.

Trying to change your mortgage when you don't have a clue about your finances is not sensible.

Sort your other debt out before considering repayment

getmore4less

https://forums.moneysavingexpert.com/discussion/5158378

other thread

£160k on joint income £42k LTV 67%

How big are the other debts?
Any kids?

jamesd

Credit card debts really hurt affordability because the monthly payments are relatively high. So reducing them comes before doing anything more than the minimum required on the mortgage if you want to work on the mortgage affordability.

If you want to save money, the credit card debts if at 0% with say an average fee of 3% every 18 months or so are cheaper than the mortgage and you'd be better off repaying some of the mortgage and using credit card balance transfers for the credit card debt to keep that inexpensive.

To blend both objectives, use credit card balance transfers and 0% for purchases deals to accumulate credit card debt and overpay on the mortgage. Each month work out how long it will take to clear the cards (amount owed divided by monthly payments you can afford at most). When you're that many months from the end of the mortgage fixed term switch from overpaying on the mortgage to repaying the credit cards. With this combination you'll save interest initially by overpaying the mortgage, then switch to improving affordability before the next remortgage is due.