Remortgage Question

Dedre

Hi all,

I am after some advice regarding a remortgage. Bit of a long, slightly complicated post so apologies in advance!

First some background... We have a 28 years left on a 30 year mortgage. To purchase our house we borrowed 25% from parents who remortgaged their second home. We are paying their remortgage back at the same time over a period of 10 years (8 years remaining). Effectively we have a 100% mortgage, but borrowed the deposit to give us better LTV (75%) for our mortgage so we could get a better rate on our own mortgage.

Our current deals are due to expire in October 2016, with interest rates and monthly payments set out below:

Mortgage 1 (£123,000 remaining) - £535 per month @ 3.09% 28 years
Mortgage 2 (£40,000 remaining) - £474 per month @ 3.30% 8 years
Total - £1,009 per month.

Our current house is estimated (lower range from estate agent) to be worth £180,000. So we have about £17,000 equity.

We are managing the repayments, but money is slightly tight, so we are looking to remortgage Mortgage 1 to a 90% LTV mortgage (£160,000) and use this plus £3,000 of savings to pay off mortgage 2. This would bring total monthly costs to c.£750 per month as well as reducing the term to 25 years. We would then have flexibility in terms of making repayments or having cash to enjoy ourselves.

First question - I have considered remortgaging mortgage 2 as well to a lower amount, but with fees and hassle the sensible option seems to just try and pay off mortgage 2. Does anyone have any thoughts?

Second question - We are looking at building an extension to the house and installing a new kitchen (paid for by savings). Conservatively this should add around £20,000 to the value of the property. Therefore if we remortgage now for 2 years at 90% LTV. In 2 years time, we should be able to remortgage again at a 75% LTV rate and get a better deal. The question is whether we look to lock in now for 5/10 years at a higher 90% LTV rate. Or Lock in for 2 years only and then go for 5/10 years in 2 years time with a better LTV.

In terms of moving, we bought the house as its a potential long term family home so don't envisage moving in near future.

I hope the above makes sense and thanks for reading!

cahillg81

There is a reason why 100% mortgages arent allowed.

Technically what you have done is commit mortgage fraud.

Dedre

OK, can you explain this further?

cahillg81

When you took out the mortgage you never told the lender that you were repaying your parents the loan they gave you from releasing equity in a 2nd property. No lender would have touched that case with that information.

That aside, my response doesn't answer your question.

In terms of what you do now, I would take out a new 2 year option oe even consider a tracker to cut your payments concentrate your efforts in paying down the mortgage on the parents property so that in future all you available cash is going into your own home.

I would never be considering a 5/10 year product with LTV at 90%. For me I only advise long term products on LTV at below 75%

Dedre

That's a better response!

I know it wasn't the correct thing to do, but I expect you see a lot of first time buyers who can perhaps afford the mortgage payments fairly easily but struggle to actually stump up the deposit. We were actually very comfortable with both mortgage payments until we had our first child, a very expensive blessing!

Thanks for the input, I hadn't considered a tracker mortgage. I will see what rates we can get on these. I do think in my head that a 90% LTV on ours and clearing Mortgage No.2 would be the 'cleaner' option.

Thrugelmir

Dedre wrote: »

I know it wasn't the correct thing to do, but I expect you see a lot of first time buyers who can perhaps afford the mortgage payments fairly easily but struggle to actually stump up the deposit. We were actually very comfortable with both mortgage payments until we had our first child, a very expensive blessing!

Not a question of correctness. You lied. Financial relationships are built on trust. In remortgaging you are now going to have to disclose where £40k of the funds is going, i.e. repaying your parents.

Westminster

I would imagine questions will be asked (by any new lender) about what the regular payments to your parents are for - and that will probably lead to further questions.

Expect to provide full bank statements so you will need to be able to explain everything on there.

getmore4less

...We are managing the repayments, but money is slightly tight...

Use the savings to pay down your debt and rebuild them once you have your finances sorted.

Extra borrowing later for the building work

You can't remortgage the second loan your parents need to do that.

look at retention deals from same lender and watch ERC if trying to overpay.

Get the best deal on 1(depending on timescales to pay off 2),
Throw everything at 2
review once 2 is paid off

Are your parents declaring the interest you are paying them for their loan?
That is taxable.

edit.

forgot to add you don't seem to have the capacity to cover building overun so need time to get that in place anyway.

Dedre

I would imagine questions will be asked (by any new lender) about what the regular payments to your parents are for - and that will probably lead to further questions.

Expect to provide full bank statements so you will need to be able to explain everything on there.

Thanks for the heads up, might be a tricky one to explain away!

Getmoreforless - Thanks for the advice. In terms of whether they are declaring it, I doubt it, although AFAIK they are also not claiming relief on their mortgage, so not sure the exact position. Will raise it with them so they can speak to their accountant.

In terms of looking for a retention deal with current provider, is that because you think we may have difficulty getting a mortgage with another provider due to the regular payments to parents?

getmore4less

If you don't want the lenders asking questions then avoid extra borrowing or changing term.

What did the parents tell their lender the money was for?

They can get tax relief on rental income for mortgage interest not you payments to them.