Need advice - the best solution

Gazella77

Hi,

Hope someone here will help me calculating what's the best solution for me.

I bought my flat nearly a year ago for £125.000, I got a mortgage with C&G and it's a stepped product:

mortgage: 116.250
25 years
Interest:
5.09% first 12 months
5.59% next 12 months
5.99% last 12 months.

My initial monthly payments were at £685.87
and should be rising to £719.66 next year
and to £746.33 the last year.

I have attempted to pay extra as much as possible but avoiding penalties (over 10%).

I have made several monthly overpayments as well as one lump overpayment (£1080) and have put a total of £5370 up to now.

I have an ISA with 8.3% (£3000 put there) as well as another online saver as my mortgage adviser told me to keep the money in as a better solution (just in case I need them for sth else and also he said I get more interest by saving)

I am not sure about it and would like to repay as much as possible.

I'm arriving at the end of mortgage year and would like to make a decision - either cash my ISA and saving account and put money towards the mortgage now or just put some from saving account and leave the ISA as it's got such a good interest rate till April.

On top of that I'm pregnant and need to save for the maternity period when I will be badly paid, so I need to consider that as well as I will be a single mother.

What would be best for me?

Thanks in advance.

Btw I should also say that what I have overpaid up to now haven't made a huge difference to my payment which dropped only to £662.47 monthly :-(

mrs_deadline

It all depends how easily you can get at your overpayments in an emergency.
For example, would you allowed to use them to take a payment holiday while you're on maternity leave?

jamesd

The ISA looks good. The savings rates available in new ISAs are also higher than the current mortgage interest rate, with 6.3% available from NS&I. So, overpaying the mortgage and saving 5.59 or 5.99% in mortgage interest costs you 6.3% in savings interest, making you worse off by 0.71% or 0.31%.

Does the C&G mortgage have any penalties for overpaying? They are not uncommon on stepped mortgages, where the lender subsidises the early years with higher rates in later years. If there are penalties, what are they and after what amount of overpayment do they take effect?

Your best choice for now looks to be saving and possibly remortgaging for a lower amount in a couple of years, if interest rates have changed by then to make it better to overpay than save.

Add in the likely need for money during the maternity period and that also favors saving instead of overpaying, so the cash is readily available if you need it.

If the mortgage is flexible and allows you to withdraw overpayments or take repayment holidays that's helpful but the interest rate difference still makes saving look like a better idea than overpaying, provided the tax free (ISA) or after tax (taxable savings accounts) interest rates are higher than the mortgage interest rate.

Gazella77

Jamesd, thanks a lot.

I can overpay up to 10% so I assume in my case it is 11.625, which I wouldn't be able to do as I have overpaid 5370 and would put extra 3000 from my savings to leave some money just in case on ISA (I wouldn't put all my savings - around 5000 into the mortgage now).

In terms of payment holiday I was told I need to contact head office as they deal with such things on individual basis.

I just can't get my head round to do proper calculations and that's why I'm asking for your advice, guys.

I am calculating I will still save at least 2000 by the time baby is born (April) and this would secure 3-4 monthly payments.

I don't know how much my mortgage monthly payments would change if I put a lump of 3000 now (obviously I am aiming at making my payments lower as quickly as possible so that when I have a baby I also have some lower payments)

Thanks a lot

jamesd

The payments won't drop by enough to make it worthwhile. Each 1,000 overpaid reduces your monthly payment by about 4.65 at 5.59% interest rate.

Instead with the maternity pay coming you're better off saving and using the savings to pay say 200 a month of the mortgage, reducing the amount you have to pay from your decreased income that way.

Gazella77

Oh dear, that sounds really depressing:mad:

Kaz2904

Honestly you are better off not relying on being able to pay enough to drop what you are paying. Try to save enough cash to see you through your maternity period whilst still paying what you should have been paying originally.
The benefits of overpaying your mortgage are to clear it quicker because reducing your payments makes it take the same amount of time and is not of great benefit. You overpay by scrimping and saving when you have the least money for what effect? At least if you continue to pay the same amount then you will clear the mortgage quicker.
If you can afford to pay the £746.33 now then it will be good practice for when you get there.
Also when you come to remortgage you should get a better rate as you will have a lower LTV.
Have you checked how much you are allowed in savings before it affects your child tax credits?

Gazella77

Hi Kaz,

thanks for your reply. I suppose you are right, I'm going to pay slightly more now (but I won't make a lump payment, I heard that in case of payment holidays the money overpaid can serve as the basis but lump sums are gone).

I don't know how much savings I'm allowed. The whole benefits system is a very complicated one. I went to CAB to get some advice but they weren't very helpful. And they also told me to come back in April after the birth. But it's no good for me as I want to be informed and prepare myself.

jamesd

What you could do is ask them now about repayment holidays and interest only to start at a certain time. Thinking ahead and trying to arrange it in advance is something they can only appreciate later, even if they say "too soon". Much better for them to agree before you're in trouble.

You can also ask them specifically about how overpayments and lump sums work and whether you can overpay or pay in a lump sum now to save interest and still use it instead of monthly payments later.

Gazella77

I will do and I will see what they say, thanks for that.

Gazella77

Ok, so I called C&G and was told that all overpayments I have made can be used towards payment holidays, however they confirmed that lump sums (over £1000) are gone and I can't count on them.
This is a relief as I have overpaid more than £2 000 and can use it to cover up to 4 months in the future. Unfortunately I have also made two lump payments and these won't be accessible (a pity as this would give me 3 more months).

I also had a thought of selling the property I have abroad but am not sure about it and would like to hear your views. First of all the prices over there keep rising, secondly I've been renting it out (which, let's be realistic doesn't give me a lot of money here as the currency is weak so it's only around £70 a month here but still sth and I can use it for over paying my mortgage here). And, lastly I feel emotionally attached to it as it was my first property bought and I achieved my mortgage free aim in 5 years over there (sounds silly but it reminds me it can be done;)).

If I sold that property I'd get approximately £30 000 which wouldn't cover a lot of my mortgage here but would get my payments radically down, I guess.

What do you think?

Thanks in advance.