Questions about additional borrowing

TrixA

We're currently 3 years into a 5 year fix at 3.99%, mortgage has 17 years to run in total. If we stay with the same lender but switch to a lower LTV deal we will qualify for either a 3 year fix at 1.54% or a 5 year fix at 1.79%. Unfortunately this will cost us nearly £5000 in ERC (which our lender says we need to pay upfront), plus the application fee of £749, but I can't really see a way around that. We will be saving about £350 a month in interest, plus the benefit of locking in the lower rate beyond our existing fixed term arrangement, so it seems worth doing, and doing now before interest rates rise.

We are planning some major home improvements in the next couple of years and it's possible we'll need to borrow additional money to finance it. I don't really understand how that process works. Will it be treated as a separate second mortgage application or as part of our existing loan? Would it be a problem if the additional borrowing took us into a higher LTV band? What fees will we have to pay? Basically I'm trying to understand if there is any downside to changing our mortgage deal now, then wanting to borrow additional money in a year's time.

Theguywhovapes

Hi trixa

It would be treated as a second mortgage so it will be a similar process to when you bought the house I.e affordability, valuations, proving income etc. Likelihood is that the LTV will be based on the overall loan to the property value, so you may have 2 loans with different LTV products.

Hope this helps

dimbo61

" I'm trying to understand if there is any downside to changing our mortgage deal now "
YES you will be paying out £5,000 plus £749 fee for the new deal.
Now its great that you are saving £350 a month but that will take over 16 months before you are better off ( not including the extra Interest )
Many lenders will not offer a new deal to customers who are already in a Fixed deal with them

dimbo61

You have 2 years ( 24 Months left ) can you not just overpay every month and build up equity in the property ?

dimbo61

Get yourself ready to have the work done in 2 years time.
If you need planning permission then apply for that now, have your plans drawn up and get a few builders to give you a detailed quote for the work.
Build up savings and overpay the mortgage if possible.
In 2 years you can remortgage to a new lender and hopefully borrow the extra you need.
Consider an offset mortgage

TrixA

dimbo61 wrote: »

" I'm trying to understand if there is any downside to changing our mortgage deal now "
YES you will be paying out £5,000 plus £749 fee for the new deal.
Now its great that you are saving £350 a month but that will take over 16 months before you are better off ( not including the extra Interest )
Many lenders will not offer a new deal to customers who are already in a Fixed deal with them

Yes I know we will be paying a big fee upfront but one of the main reasons for doing it is that the current low interest rates are unlikely to be available in 2 years when our current deal expires. Our lender seems ok to offer us a different deal.

TrixA

dimbo61 wrote: »

You have 2 years ( 24 Months left ) can you not just overpay every month and build up equity in the property ?

Yes, we could overpay instead, but would be likely to miss out on the current low interest rates, which are unlikely to be available in 2 years time when our current deal expires. Also, the reason we're not overpaying at present is that we're saving to improve the house.

TrixA

Theguywhovapes wrote: »

Hi trixa

It would be treated as a second mortgage so it will be a similar process to when you bought the house I.e affordability, valuations, proving income etc. Likelihood is that the LTV will be based on the overall loan to the property value, so you may have 2 loans with different LTV products.

Hope this helps

Thanks, it does help. So when we apply for the additional borrowing we would need to pay an application fee for the second mortgage, but no ERC on our existing one?

Theguywhovapes

TrixA wrote: »

Thanks, it does help. So when we apply for the additional borrowing we would need to pay an application fee for the second mortgage, but no ERC on our existing one?

That’s correct, the existing mortgage remains untouched and you set up the second mortgage, sometimes called a sub account, completely separate to it.

YHM

Just a question. If you are already taking the ERC on the chin, why just consider your existing lender?

Have you considered sitting down with a broker and just remortgaging elsewhere, which could potentially get you a better rate and monthly interest saving....