Re-mortgaging this year

fatrab

Hi, I'm due to remortgage in September at the end of my current 5 year fix at 3.14%. Currently £801/month. I have been making irregular overpayments over the 5 years.

By September I expect to have under 7 years and under £60,000 remaining. The property value was £128,000 5 years ago (this may have increased slightly) giving an LTV of around 47%.

I want to be completely debt & mortgage free in 5 years.

I don't expect to be able to make many overpayments for the next 2 years if I take a new mortgage with similar monthly payments, as I'm focussing on other small debts first, but then in years 3 to 5 I should be in a position to overpay considerably, way in excess of the 10% normally allowed.

So my question is, should I be looking at either:
1 - the cheapest possible 2 year fix/7 year term, then remortgage again in 2 years time
2 - a 5 year fix/7 year term and overpay the maximum/save as much as possible to pay off at the end of 5 years
3 - a 5 year fix over a longer term (10 years) giving lower monthly payments but a better opportunity to overpay throughout the term and save as much as possible to pay off at the end of 5 years.

Or is there a better way?

Any advice or opinions would be appreciated.

Many thanks.

ian310567

I would go for option 2, your monthly repayments should be roughly the same as they are now and you would be protected from rate increases for the next 5 years, potentially being able to clear the debt by the end with overpayments.


Also, the rate differential between 2, 3 and 5 year fixed rates are not currently that great and you would not incur re-mortgage fees in two years time (if applicable).

fatrab

Thanks Ian,


On paper I agree it looks the better option but because I am not going to be able to take advantage of the 10% overpayment allowance in the first two years I wondered if one of the other options made more sense. Whether the short term gain would offset the lack of overpayments?


My only other option would be to take the £60,000 over a 5 year fix, but this would take my payments up to around £1050 and I'm not sure that would pass the stress test.


Does anyone else have any thoughts? Thanks

ian310567

fatrab wrote: »

Thanks Ian,


On paper I agree it looks the better option but because I am not going to be able to take advantage of the 10% overpayment allowance in the first two years I wondered if one of the other options made more sense. Whether the short term gain would offset the lack of overpayments?


My only other option would be to take the £60,000 over a 5 year fix, but this would take my payments up to around £1050 and I'm not sure that would pass the stress test.


Does anyone else have any thoughts? Thanks

I guess this comes down to how good your crystal ball is? and your attitude to risk vs. certainty.
Do you want to risk having a higher interest rate in two years?


Personally, I wouldn't take the £60k over 5 years if the repayments could be a stretch, whereas being able to overpay when you want to potentially clear the debt in the same time period make more sense to me (substituting other debt payments in years 1-2 with overpayments in years 3-5?).

fatrab

Very true, I can't see interest rates rising sharply but you never know!

I think number 2 will be my plan of action, just wanted to make sure I wasn't missing anything or making a huge mistake. I have been told that I have a lump sum (£25k) coming in around 2 years but I don't want to depend on that, just incase it doesn't come through. If it does then it's plain sailing for 5 years into mortgage freedom!

Thanks again.

getmore4less

lets do the numbers.

fatrab wrote: »

Hi, I'm due to remortgage in September at the end of my current 5 year fix at 3.14%. Currently £801/month. I have been making irregular overpayments over the 5 years.

By September I expect to have under 7 years and under £60,000 remaining. The property value was £128,000 5 years ago (this may have increased slightly) giving an LTV of around 47%.

OK <50% LTV and £60k over 7 years as the starting point

I want to be completely debt & mortgage free in 5 years.

I don't expect to be able to make many overpayments for the next 2 years if I take a new mortgage with similar monthly payments, as I'm focussing on other small debts first, but then in years 3 to 5 I should be in a position to overpay considerably, way in excess of the 10% normally allowed.

lets go with 2 years at £800pm

So my question is, should I be looking at either:
1 - the cheapest possible 2 year fix/7 year term, then remortgage again in 2 years time

sounds good

2 - a 5 year fix/7 year term and overpay the maximum/save as much as possible to pay off at the end of 5 years

also an option.

3 - a 5 year fix over a longer term (10 years) giving lower monthly payments but a better opportunity to overpay throughout the term and save as much as possible to pay off at the end of 5 years.

changing term will require full application and not just a retention deal

Or is there a better way?

Any advice or opinions would be appreciated.

Many thanks.

your rate options should be good @ <50% LTV but lets start with the current rate

£60,000 @ 3.14% 7 years £796.59pm interest £6,914

you say you can afford £800pm

£60,000 @ 3.14% £800pm interest £6,880

looking at Santander retention rates for 2y and 5 y

2y 1.64% £0
2y 1.29% £999
5y 2.04% £0
5y 1.79% £999

They become with a 7 year term
£60,000 1.64% £756.56pm interest £3,550
£60,999 1.29% £759.85pm interest £2,828
£60,000 2.04% £767.11pm interest £4,436
£60,999 1.79% £773.16pm interest £3,947.

plugging in £800pm which is within the 10% limit then looking at the 2 and 5 year position.

£60,000 1.64% £800pm £42,494
£60,999 1.29% £800pm £43,153
£60,000 2.04% £800pm £42,916 £15,949
£60,999 1.79% £800pm £43,688 £16,531

the no fee options are the best so that leaves us with

£60,000 1.64% £800pm £42,494
£60,000 2.04% £800pm £42,916 £15,949

At Y2 the 5y fix will cost around £400 more than the 2y fix.

At the end of the 2y deal you need a rate of 2.52% or better to match the 5y.

If rates stayed the same and you did the 3 years at 1.64% the interest would be £1,442 about £400 lower than the cost of the 5y in the same period.

the risk you are trading by going for the 2y over the 5 is rates won't go up by more than around 1% over the 2 years against a potential saving of around £800 if they stay the same


But as you want to overpay and get the term down to 5y total.

your 5y fix will start at
£42,916 2.04% £800pm interest £1,833

To pay it off in 5 years you need

£42,916 2.04% £1230pm interest £1,363

That £400+ pm will be more than the 10% but if rates have gone up there should be savings rates available at close to or better than the mortgage rate anyway.


The bottom line is the difference in cost is going to be around one mortgage payment over 5 years.

One option at the 2year point if debt free is to find money at less than the mortgage rate and stooze.
A long term 0% purchase CC might be an option to squeeze down the interest costs.

if you have any debts at higher rates than the mortgage pay them first and if similar to the mortgage(or a bit less) but will take longer than the mortgage change date do the cashflow/cost and consider stopping all mortgage overpayments.

EDIT: £25k maybe....

With the potential for a lump sum around 2y time that could favour the 2y fix as you can review option with the 2y

but you weigh that against the I think rates will go up so if I fix now for 5y I can get better rates in savings at Y2.

enthusiasticsaver

I think that considering you want to be mortgage free in 5 years I would go for the cheapest option whether a 2 year or 5 year fix and aim for the maximum overpayments in years 1 to 5 which is usually 10%. Save alongside if possible to reduce the balance in 2 years time and then either go for another fixed or leave as SVR so you can overpay as much as you like.


As the balance gets lower the interest differential will make less difference so if rates go higher in 2 years the mortgage should have reduced enough for it to make little difference.

fatrab

Thanks getmore4less, thank you for your time putting together such a comprehensive reply.


I plan on all my other debt being completely clear around the end of 2019. Provided there are no major hiccups along the way this should be easily achievable and I should be able to sneak in a few mortgage overpayments along the way. At the moment I have a surplus of around £900pcm which will snowball as each small debt is cleared.


Given the uncertain news from the BoE today about interest rates I think I'll happily take my chances with a 5yr fix and make my best effort to overpay the 10% each year.


The potential £25k would be from the sale of a property by my mother, but it depends on what she decides to do in 2 years time when the property is paid off. She had indicated that the property will be sold and the monies divided between us. She has been known to change her mind though so I'm not depending on this. It'll be a bonus if it transpires.

fatrab

I think that earning from saving and/or stoozing would be worth a shout as it'll keep me amused while the mortgage trickles away.


Re-mortgaging over 5 years would mean my overall 5 year plan will be slightly extended but I can live with that if I'm in a position where I have all the money available to pay the mortgage off at the end of the 5 years.


Thanks for all your comments and advice, really appreciate it