Finances 1st Quarter Review

bowlhead99

Cotta wrote: »

Slight typo, early re-settlement figure is 5%.

Well, that's a big difference from 10% so it's always worth looking at the effect of paying it off and remortgaging early.

Ok so let's assume for the sake of argument your property is worth £90k (as I haven't anything else to go on) and the mortgage is £66k. That puts you in the <75% LTV bracket.

No idea if that's realistic, as for all I know the property is only worth £70k at 94% LTV and nigh on impossible to remortgage. So let's pretend the house is £90k.

If you pay your early repayment charge on a £66k mortgage and its 5%, you'll need to pay £3300. However, you could go to Nationwide (just as an example) to borrow the £66k from them on a remortgage and it will cost you 1.74% on a two year fix with no product fee, which is nearly 3% lower than your current rate.

Over the course of two years on a mortgage balance that would be an average of £64-65k ish over that time, the saving of almost 3% on the interest rate on that sum of money would amount to about £3800. Which is usefully higher than the £3300 it would cost you in early repayment fees up front. Basically it's like getting a return of £500 on a £3300 investment, with the return (interest saving) paid monthly over two years (so on average, the return is paid after one year). A great return.

That would be a higher rate of return than you would be getting by simply using your cash to make overpayments or using the cash to save in a regular saver account at 5% a year.

However, the problem is:

You don't have the requisite £3300 cash available to pay off the ERC, because you don't currently have much more than a month's net pay in your emergency fund savings account.

You would have to put it on the mortgage, which would reduce the profits slightly, because of the costs of borrowing that £3300 extra on the new mortgage would be £60 or so over the two years assuming 1.74%. Still worth considering. But it also means your mortgage balance goes up to £69k from £66k. Which means, if your property was worth £90k as in my example, you'd be over 75% loan-to-value and wouldn't get such a good rate after all. If you have to pay an extra quarter percent on the 60-something thousand over the next two years, that's another £150+ of extra interest.

All these things add up and suddenly you're not making £500 on your "investment", but less than £300. At some point it stops being worth the hassle. Especially if those mortgage rates of 1.74%-1.99% are pie in the sky for you because you have bad credit or a complicated shared ownership scheme where lenders are more reluctant to lend at cheap rates.

Don't completely ignore the chance to remortgage and save more than the repayment fee, but as you don't have much cash to play with you would need to be able to fit the remortgage amount into your existing mortgage (or a 0% credit card bank transfer thing for two years) to be able to pull it off.

Cotta

bowlhead99 wrote: »

Well, that's a big difference from 10% so it's always worth looking at the effect of paying it off and remortgaging early.

Ok so let's assume for the sake of argument your property is worth £90k (as I haven't anything else to go on) and the mortgage is £66k. That puts you in the <75% LTV bracket.

No idea if that's realistic, as for all I know the property is only worth £70k at 94% LTV and nigh on impossible to remortgage. So let's pretend the house is £90k.

If you pay your early repayment charge on a £66k mortgage and its 5%, you'll need to pay £3300. However, you could go to Nationwide (just as an example) to borrow the £66k from them on a remortgage and it will cost you 1.74% on a two year fix with no product fee, which is nearly 3% lower than your current rate.

Over the course of two years on a mortgage balance that would be an average of £64-65k ish over that time, the saving of almost 3% on the interest rate on that sum of money would amount to about £3800. Which is usefully higher than the £3300 it would cost you in early repayment fees up front. Basically it's like getting a return of £500 on a £3300 investment, with the return (interest saving) paid monthly over two years (so on average, the return is paid after one year). A great return.

That would be a higher rate of return than you would be getting by simply using your cash to make overpayments or using the cash to save in a regular saver account at 5% a year.

However, the problem is:

You don't have the requisite £3300 cash available to pay off the ERC, because you don't currently have much more than a month's net pay in your emergency fund savings account.

You would have to put it on the mortgage, which would reduce the profits slightly, because of the costs of borrowing that £3300 extra on the new mortgage would be £60 or so over the two years assuming 1.74%. Still worth considering. But it also means your mortgage balance goes up to £69k from £66k. Which means, if your property was worth £90k as in my example, you'd be over 75% loan-to-value and wouldn't get such a good rate after all. If you have to pay an extra quarter percent on the 60-something thousand over the next two years, that's another £150+ of extra interest.

All these things add up and suddenly you're not making £500 on your "investment", but less than £300. At some point it stops being worth the hassle. Especially if those mortgage rates of 1.74%-1.99% are pie in the sky for you because you have bad credit or a complicated shared ownership scheme where lenders are more reluctant to lend at cheap rates.

Don't completely ignore the chance to remortgage and save more than the repayment fee, but as you don't have much cash to play with you would need to be able to fit the remortgage amount into your existing mortgage (or a 0% credit card bank transfer thing for two years) to be able to pull it off.

Really good advice.


In relation to re-mortgaging I tried already with Nationwide and they turned me down. As each month passes the £500 dwindles. It's a bit disappointing as in two years time at renewal my balance will be £62k which is not a big reduction for paying £393 per month.


I bought my house for £84k three years ago.

chockydavid1983

On a positive note, keep in mind that as you continue to pay down the balance, the interest gets lower and you then pay down the balance quicker as time passes :-).

Cotta

I will work with what I have then.

So each month transfer £150 out towards my parents debt and £350 into a regular saver. Does anyone recommend a good account?

Finally I have a dormant Danske account that has no money in it or dd's associated with it, can this be used to avail of a switcher bonus elsewhere?

cloud_dog

Cotta wrote: »

...and £350 into a regular saver. Does anyone recommend a good account?

Your mortgage is with Nationwide....do you have your bank account with them?

If you do, and you qualify, their 5% Regular Saver is probably one of the best.

Cotta

cloud_dog wrote: »

Your mortgage is with Nationwide....do you have your bank account with them?

If you do, and you qualify, their 5% Regular Saver is probably one of the best.

Mortgage is with Bank of Ireland, Nationwide turned me down.

I have a flexi account with Nationwide, I'll enquire about their regular saver.

Cotta

Just on the subject of saving straight to a Regular Saver Account, Martin's saving's guide suggests bank accounts are the second best option with Regular Savers at three - have I missed something?

AndyT678

Regular savers have low limits on how much can be deposited which means they may not be first choice for people looking for an immediate home for £'000s but they're perfect for you at the moment.

badger09

Cotta wrote: »

Just on the subject of saving straight to a Regular Saver Account, Martin's saving's guide suggests bank accounts are the second best option with Regular Savers at three - have I missed something?

That guide probably needs rewriting. In the fairly recent past it was possible to get 5% interest from both TSB and Nationwide, 4% from Lloyds and loads of banks were offering 3% - eg Santander 3% on £20k and you could have 2 accounts.

However, that has changed dramatically. With a relatively small amount you can't beat Nationwide FlexDirect and its regular saver.
Then, look at other regular savers.

Cotta

badger09 wrote: »

That guide probably needs rewriting. In the fairly recent past it was possible to get 5% interest from both TSB and Nationwide, 4% from Lloyds and loads of banks were offering 3% - eg Santander 3% on £20k and you could have 2 accounts.

However, that has changed dramatically. With a relatively small amount you can't beat Nationwide FlexDirect and its regular saver.
Then, look at other regular savers.

Probably a stupid question but is the Nationwide rate guaranteed for a period of time? Also is £500 the limit each month?