Need advice - possible to pay a 20 year mortgage in 6 years?

Leth

I will try to keep this short..

I have £20k to put down down as a deposit on a £100k property.
Mortgage: £80k
Term: 20 years (I would like to keep my monthly payments down)

I’m able to make lump sum payments of £7k towards the loan at the end of each year - this money is coming from my brother and sister who are helping me to pay down the mortgage as soon as possible. In return, I will do the same for them once this house is paid off and they decide to buy their property.

This means that in just 6 years I would have the house almost paid off (£42k in total from my brother and sister + £20k deposit = £62k paid)

Given the above scenario and assuming that I don’t mind about Early repayment charges (ERCs):
- Is it achievable to pay down this mortgage in 6 or 7 years instead of 20?
- What sort of mortgage should I take? Fixed, SVR?
- Is there any issues that I’m not considering?

SummerSunshine2

Yeah you would have to check the terms and conditions of the mortgage.... and although this sounds great on paper is it necessary?

You don’t state your income and your siblings income. What happens if you can’t pay them back or they lose their job.

A £80k mortgage over 20 years means you’ll pay an “extra” £26,500k in fees - the banks gets £25 extra week from you.

If your siblings can afford to give you money, why don’t you leave it a couple of years to see what life throws up at you all?

Leth

My income is £30k per year, net £1900 per month.

Even if my siblings lose their job I would still be able to carry on paying the mortgage normally by myself.

I’m assuming the £26.5k in fees you refer to is the interest? That is exactly what I want to avoid by doing lump sum payments of £7k by the end of each year, and pay off all debt as soon as possible.

I have very little knowledge when it comes to mortgages.

What I really want to know is if there is anything that would prevent me from doing the above scenario or if there are other restrictions that I should be aware of?

Nebulous2

There is nothing to prevent you overpaying a mortgage. How fast you pay it off depends on how much you can afford. However ERCs could be significant. It might be worth trying to minimise those - certainly do your sums to try to work out what will be cheapest. I think some trackers don't have ERCs.

BoGoF

If you are applying for an initial fixed rate deal then there are likely to be restrictions on the amount you can overpay

ViolaLass

Your siblings need to be clear that when they give the money to you, it becomes yours (unless they are also named on the deeds for your house). What's in this for them? They could save the money and get a smaller mortgage when they want one.

What if you lose your job? What if the house gets repossessed?

Are you living within your means? Why do you need their help on your salary? Why not make monthly overpayments from your own salary?

System

Leth wrote: »

Given the above scenario and assuming that I don’t mind about Early repayment charges (ERCs):

Oh you absolutely will. Once the outstanding amount gets below £70,000 then every year you're on a fixed deal and you pay off £7000 you will pay a penalty of up to 6 months interest. In the first few years that'll write off a fair chunk of your overpayment.

A far better plan is to pay off 10% of the outstanding amount annually at the beginning of the new mortgage year (some reset on 1st Jan, others do it on the day the mortgage was taken out) and put the rest of the money in a savings or investment vehicle, ideally one with a higher interest rate than the mortgage. When the fixed deal comes to an end then before starting another fixed deal pay off a lump sum with the money you've saved so you can avoid the ERC, rinse and repeat.

The benefits of doing the above are twofold:
1) You don't waste your money needlessly paying ERCs.
2) If one of life's curveballs lands on your lap then you have money you can use if you need to.

getmore4less

It would be worth considering offset options on this kind of scenario.

This would limit the risks of any income fluctuations and the need for the doner to get money back faster than you could pay.

There are lenders that will allow then to keep their money ring fenced from yours.

Leth

Are you living within your means? Why do you need their help on your salary? Why not make monthly overpayments from your own salary?

Yes I am.
No debt, secure job in a very well established company, no kids.
I am a software developer, even if I lose my current job I don't think I'd struggle finding another one.
I only use my salary to pay rent, utility bills and food.. the rest of it goes to my savings.

The real reason why my siblings are involved is because we intend to own 3 rental properties (one for each) in 15 to 18 years maximum.
We agreed that if each one of us puts £200 for 72 months (6 years) via a standing order into a shared account that we own, in 6 years we would have something like £45k.
This amount can then be used to pay off the debt straight away.. That's why I'm only going for a £80k mortgage max.
We would then repeat this until each one of us owns a property outright, so it would take approximately 15 years to own 3 proprieties, instead of a lifetime..
Once these are completely paid off, we then intend to put them to rent and then each buy our own dream home while having the rent from these paying our mortgage.

This is a long term project (we are all aware of it) and even if it fails I believe it's a win-win, because I would still have a property anyway.

This is the reason why I'm asking if it's possible to pay off a 20 year mortgage deal in just 5 years.

A far better plan is to pay off 10% of the outstanding amount annually at the beginning of the new mortgage year (some reset on 1st Jan, others do it on the day the mortgage was taken out) and put the rest of the money in a savings or investment vehicle, ideally one with a higher interest rate than the mortgage. When the fixed deal comes to an end then before starting another fixed deal pay off a lump sum with the money you've saved so you can avoid the ERC, rinse and repeat.

The benefits of doing the above are twofold:
1) You don't waste your money needlessly paying ERCs.
2) If one of life's curveballs lands on your lap then you have money you can use if you need to.

I think my best option is what you mentioned.. maybe go for a 5-year fixed mortgage.
This would keep my repayments down for this period allowing me to save even more money.
At the end of the fixed period, I would just pay a lump sum of £45k that we saved throughout the 5 years without having to pay ERCs.

ViolaLass

If you're all going to contribute to each other's properties (with the risks inherent, some mentioned in my previous post which you quoted from), why not just pay off your own mortgages?

Also, why insist on paying off your whole mortgage before buying a second property? If you want to do it more quickly, converting to a BTL mortgage would be quicker (assuming you get accepted).

nicholbb

Speak to a broker.
As mentioned above look at an offset. This is an account linked to your mortgage, the balance of which is taken from the amount you owe.

This doesn't attract early repayment charges and you can withdraw the cash with little notice (1 working day for me).


So:
£80k mortgage
£20k offset
You pay interest on £60k


Disadvantage is slightly higher interest.