Advice to clear Mortgage in next 4 years

pmortl

Hi All, a very brief history, having 2 bankruptcy's under my belt, managed to get clear of all that and work our butts off at being financially good, now have a decent credit score, savings, credit card (paid off every month - IN FULL Martin!).

Purchased a property almost a year ago £242K, had a lot of help (inheritance) to get started and now have as of today balance of £76K left, Nov 2019 is end of current 2 year (capital & interest repayment mortgage) deal, plan to make 10% overpayment in Nov 2018 of £7.6K and by end of current deal make a £15K payment to start a new remortgage deal of between £50K and £48K thereabouts.

So, to the query, what ideas would be good to clear off this mortgage by Nov 2022. We currently pay £337 pcm on current deal with 23 years left on term and can afford to put aside £1500 pcm (for now and hopefully until the end of the 2022 all things being well). We choose to pay a lower monthly amount as we know if things go bad we can still afford this every month, but if we put our NEW mortgage over a 3 year term at a very high monthly payment and for some reason couldn't make the payment that month we'd be in trouble.

Should we get a new remortgage as Capital & Interest at the same current monthly payment £337 (term of 22 years) or thereabouts and save the extra money and hopefully at the end of the 3 year term when remortgaging pay off in full
OR
perhaps get an Interest only remortgage over a 3 year term paying smaller interest, perhaps about £70pcm and put the extra £267 approx. added to the £1500 monthly saving and pay off lump sum at the end?

I've probably not explained myself too clearly, hence why I'm here for some advice on how to go about clearing this in the next 4 years (1 year left on current mortgage package, and 3 years on new Remortgage to start Nov 2019). We would like to keep monthly payments to a minimum and savings to a maximum and if our health or whatever goes wrong we simply revert back to longer term capital & interest mortgage and wait patiently like everyone else. I look forward to hearing your comments, even if you say my plan is totally bonkers. Thanks in advance. Paul

Thrugelmir

22 years is a long time. Shorten the term to whatever you are comfortable with. There's no right or wrong. Hold savings of 6 months expenditure to protect yourselves against the unexpected.

dimbo61

Getting an interest Only mortgage can be very difficult.
Why not look at an offset mortgage and keep the same term
If you take a 2/3 year deal and put the £1,500 into the mortgage and any left over into savings you could have a lot of the mortgage paid off with repayments and funds built up in the offset account.

madvicker

An alternative could be to invest the £1500 a month, let it grow until it is large enough to pay off the balance of your mortgage. Makes more financial sense, but requires a steady mind and is not suitable if you are risk averse.

pmortl

Thrugelmir wrote: »

22 years is a long time. Shorten the term to whatever you are comfortable with. There's no right or wrong. Hold savings of 6 months expenditure to protect yourselves against the unexpected.

The problem with shortening the term too much pushes the monthly payments up much higher and if we get to a point where we can't manage that high payment one or two months then that would be a problem, whereas we planned to keep the term as is if we kept a repayment mortgage and made large amount of savings each month, that way if one month we couldn't save as much it wouldn't have any long term affect as we could still make the basic payment.

pmortl

madvicker wrote: »

An alternative could be to invest the £1500 a month, let it grow until it is large enough to pay off the balance of your mortgage. Makes more financial sense, but requires a steady mind and is not suitable if you are risk averse.

That's pretty much what we had in mind but we aren't too sure what to do for the remortgage, another capital & interest mortgage could cost £337 pcm at the same term (interest payments about £100 pcm), but if we went for an interest only mortgage a quick comparison that I did earlier for a 10 year term on £50k mortgage worked out about £70 pcm which would mean we could put the extra £267 on top of the £1500 and after 36 months at £1767 would be £63.6K, more than enough to clear the mortgage at the end of a possible 3 year fixed interest only mortgage. Does this sound correct?

enthusiasticsaver

You will struggle to get interest only mortgage and it could be too tempting to just ignore the capital repayment. Also having such a low monthly payment restricts the amount you will pay off each year and many products have a maximum of 10% overpayment each year. Surely it does not have to be either 3 year or 22 year? Can you perhaps knock 5 years off the term and increase the payment so even if things go bad you could still make the monthly payment? That is what I would do, decrease the term slightly each time you remortgage so long as it does not cost you to do that. Alternatively you can invest with the aim of eventually using that to clear it but you are relying on the stock market performing well over the next few years which is not guaranteed.

pmortl

enthusiasticsaver wrote: »

You will struggle to get interest only mortgage and it could be too tempting to just ignore the capital repayment.

Why do you think we will struggle to get an Interest only mortgage?

Surely it does not have to be either 3 year or 22 year?

I think you misunderstand, when we come to remortgage our balance should be about £50K, we would look to perhaps take an Interest Only mortgage at reduced term of 10 years (a drop from the original 22 years left on the mortgage), with the initial first 3 years of the remortgage at a FIXED rate, with the hope to pay off the entire mortgage with savings made over the 3 year period using the £1700 savings per month, these savings wouldn't necessarily have to be in a risk account, even if we were really silly and put it in a 0% savings account at the end of the 3 year period we would have savings of £63K which would easily pay off the entire mortgage when it came to remortgage at the end of the Interest only 3 year initial FIXED rate product.

getmore4less

what are you trying to do


Term is only a way of setting the min contractual payment be it interest only or repayment

Only difference is on a short term interest only you load the payment at the end.


if you want to mitigate the risk of not being able to afford the total(capital + interest) short term have the longest term you can.

pmortl

getmore4less wrote: »

what are you trying to do

I am wondering which is the best way to go, a repayment mortgage with as you mention reasonably long term 22 years for now I think, or an Interest only mortgage. As I'm looking to save £1700 approx. a month (in a general savings account), by the end of a 3 year period (if I manage to fix the interest rate for 3 years) I will have enough money (£62K) to pay off the entire mortgage (£50K at point of remortgage) regardless if I use repayment or interest only, but if I go interest only I may have more money to put into savings for the 3 year period. Unless there is another option...

ViolaLass

What's the interest rate on your mortgage?