ATB'S Frugal Foray to Freedom

atypicalblonde

Ziffit money has been shuffled. Uploaded some more items on there yesterday and will get £15 for them, just need to box them up & send them off.

NSD ahead and got a couple of bits to list on eBay. Small wins :money:

atypicalblonde

It's been such a busy few weeks I have neglected my diary. Naughty ATB.

Mortgage stands as £122,400 today. Having maxed out OP allowance for the year, made enquiries of mortgage company as to how much penalty would be if we OPd another chunk now. It's 2% of whatever we OP.

Our interest rate is 2.39% so surely we would be better off making an OP? My brain isn't clever enough to work out such things. I did ask them the question but they were decidedly coy about it.

Just had a very MSE lunch of leftovers cobbled together from the fridge. It's chilly here today, but determined not to put the heating on. More tea needed!

Watty1

nice to see you back

aeronickuk

Re the 2% penalty, your interest cost of 2.39% is spread over a year but it sounds like the 2% is straight off the top, so think carefully.....

Have you maxed out on all the higher interest savings accounts that you could, to use until you can repay again?

greent

You could ask them how much would the fee be for the amount you want to OP and then ask what the effect would be on your monthly payment to help you decide - they should be able to provide those figures without any need to be coy (no opinions required, just figures). (But you also need to take into account the amount you could earn in interest on that figure between now and the next time you can OP without penalty)

atypicalblonde

Thanks guys. I want to OP £10k, so the fee would be £200. Part of my logic too, which I should have explained, is that when our mortgage comes up for renewal in March I want to ensure we are at 60% LTV to secure the best two year fix we can. OPing this extra money will get us there.

As that new two year fix should (I mean WILL ) take us up to the date we will have paid it off by, I want to ensure it's at the best rate. Hope that makes sense.

You're right greent I should just ask for the figures. Will gird my loins and make the call tomorrow x

hiddenshadow

Not sure what the bank will say, but some basic math (which may or may not help)

10k x 2.39% = £239 interest over a year

239/365 = 65.5p/day

135 days between now and March 1 (not sure when your fix is up) = £88.43 saved in interest by making the OP

Compare that to £200 fee and you're worse off by making the OP.

If it were me I'd see about getting a valuation in Jan/Feb to see where you stand re: LTV and then make the £10k OP then if need be..it might be that you're already under 60% and don't need to pay the extra. (We were quite surprised after 2 years to go from 90% LTV to sub-60%, 15% of which was from increased value, not overpaying the mortgage.)

atypicalblonde

hiddenshadow wrote: »

Not sure what the bank will say, but some basic math (which may or may not help)

10k x 2.39% = £239 interest over a year

239/365 = 65.5p/day

135 days between now and March 1 (not sure when your fix is up) = £88.43 saved in interest by making the OP

Compare that to £200 fee and you're worse off by making the OP.

If it were me I'd see about getting a valuation in Jan/Feb to see where you stand re: LTV and then make the £10k OP then if need be..it might be that you're already under 60% and don't need to pay the extra. (We were quite surprised after 2 years to go from 90% LTV to sub-60%, 15% of which was from increased value, not overpaying the mortgage.)

Good morning HS and thanks for this. I must confess to not quite following your workings out (like I said though I am dreadful at maths so very happy to stand corrected!)

When I look at our monthly payment of £606, £249 of that is debited as interest. On a 31 day month I work that out that we pay around £8 interest per day. So of the £200 penalty that's around 25 days interest, and we have much more than that left before our fix ends.

Does that make sense? Or am I working it out all wrong? I get quite anxious on the phone sometimes so am nervous to phone them again, would rather muddle it out the MFW way

hiddenshadow

Sorry, happy to annotate my thought process. Basically you need to compare the cost/reward of doing the OP vs not.

First, regular daily interest if you didn't OP.
(2.39% = 0.0239 as a decimal)

122,400 balance x 0.0239 (interest rate) = £2925.36 . <-- total interest you'll pay in a year
£2925.36 (yearly interest) / 365 (days) = £8.01 <-- total interest you'll pay per day

So yes, you're on £8/day interest.

What you want to compare is how much you save in interest by OPing the extra 10k vs how much you pay as penalty fee. So if we redo the calculation...

112,400 balance (post-OP) x 0.0239 (interest rate) = £2686.36 . <-- total interest you'll pay in a year
£2686.36 / 365 = £7.35 <-- total interest you'll pay per day

There are 135 days between now and March.

£8.01 (regular interest) * 135 = £1081.35 . <-- total interest to March 1 without OP
£7.35 (interest after OP) * 135 = £992.25. <-- total interest to March 1 with OP
(n.b. those numbers aren't perfect because obviously you'll be paying down some principal between now and then so your daily interest will go down a bit, but at least this compares the numbers as of today)

£1081.35 - £992.25 = £89.10 . <-- amount you save in interest by paying the 10k

Penalty fee of £200 is more than double £89.10, so you'd end up out of pocket if you OP (which I guess is the point, or they wouldn't bother putting in a cap and a penalty fee).

I guess final calculation is the £200 - £89.10 = £110.90, so you could always evaluate if it's worth that much to you in order to get the mortgage to a certain balance.

As I said, I'd wait a few more months, get a valuation, and see where you stand there. You might not need to OP all 10k to get to 60% LTV, or (hopefully not!) you might discover you're further away from 60% than 10k anyway. If you're going to pay the penalty fee to OP whenever you do it, you may as well be armed with as much info as possible before you do it.

Hope that's a bit clearer!

atypicalblonde

Thank you, thank you, thank you HS That makes much more sense to be now, and I am very grateful to you for taking the time to do that. Lots to think about, will give it some careful consideration over these next few days.

Have a lovely day & big thanks to you again lovely :kisses3: