Mortgage ending remortgage advice?

boomish

We've had a interest only tracker for the past 16 years & 8 months on an 18 year loan, so only 1 year & 4 month to go (gulp)

I looked at my options 5 years ago and Barclays advisor said we are on such a good rate come back when there is only a year and see, the only option then was the same rate but a repayment. As I'm self employed & we are both low earners we prefer the less stressful lower monthly payment then over pay as we afford it.

We have cut the mortgage down 24k from it's initial 112k and never missed payment, no credit cards or loans etc. so we have a pretty good credit score.

The Barclays advisor yesterday said due to a policy change we can't keep our current rate (.15 over base) as it has no Early repayment on it, all new products have to have one.

So he worked out our best deal is to switch to a new product still interest only giving us flexibility, a EMC reward 5 year fixed at 2.08%, this is an APRC of 2.2% , and a ER of 3% .

This kinda seemed the best deal we get to keep a similar low monthly cost although double what we currently pay & can still overpay up to 10%.Longer deal was 7 years with 5% ER and shorter was 2 or 3 years so not sure worth it, we may move in that time.

We are in our mid 50's, have saved around 40k so we could reduce the mortgage but we would have no emergency fund at all. We can't move out of town now but maybe in 5-8 years time.

I'm unsure what to do, we have 1 year 4 months of our super low rate left, if we go for it now we lose that but get that deal for the next 5 years which may be good if rates go up. Or wait a year and re-apply with 6 months to go, saving £700 and know a bit more about the markets post Brexit etc however we may not get offered the same deal.

Or should I shop around for a broker? I kinda presumed that would be a waste of time as we don't earn a lot and more than likely won't get an interest only deal, plus scared of anything affecting our credit score.

Other options are to pay off another 20k and bring the borrowing down, or try and use that 40k to make better use of the money, currently in ISA's earning very little.

I hope thats not too long, I've tried my best to shorten it..feeling little out of my depth and stressed about sorting this out for a long time.
Appreciate any advice or opinions on what might be best?
Many thanks for taking time if you do.

pinknsparkly

My personal opinion is that you have a very large pot of savings at the moment, which (assuming they are cash savings) are unlikely to be earning you more than the 2.08% you'll be paying in interest on your mortgage. I'd therefore reduce your savings pot down to whatever is appropriate for you (a common suggestion is 6 months worth of outgoings, though you may want to have more than that if you're self-employed and your partner is in a job that they could lose fairly readily) and use the rest to reduce your mortgage.

If you used £30k of savings to reduce your mortgage down to £58k (£112k original mortgage - £24k alrady paid off - £30k from savings), you could still make annual overpayments of £5.8k a year (just under £500 a month).

Given that you've been making average overpayments of £125 a month (£24k in 16 years) and that the interest on your mortgage will increase from £66/month to £101/month (assuming you pay off £30k of your mortgage before remortgaging or £153/month if you don't) you have plenty of spare room in the amount of overpayments you can make.

Whether you remortgage now or at the end of your mortgage is entirely up to you. Personally, I would fix asap for as long as I am sure I'd stay in the house (with your low income, you won't be hitting any ERCs due to overpayments so will only pay them if you move house). My logic for fixing now is that I feel interest rates are only likely to increase (though I may well be wrong, and only time will tell) but you have to make that decision for yourself. Also don't forget that (usually) there are fees to pay every time you remortgage so the more frequently you remortgage the more you'll pay in fees. This is more significant on smaller mortgages (as fees are usually fixed rather than a % of the mortgage).

What do you intend to do with the mortgage at the point of retirement? Use your pension lump sum to pay off the rest of it? Make enough overpayments to pay it off by then (currently your overpayments are nowhere close to enough to pay it off)? Downsize?

In regards to your question about brokers - shopping around for them won't affect your credit score. It's only mortgage applications that will appear on your credit history.

boomish

Amazing advice pinknsparkly, thats kinda been my gut feeling to grab this offer now, but I'm so worried about making the wrong decision.

Don't think we can retire for some time, but downsize to somewhere cheaper, shame about the ER, but the advisor suggested if we haven't moved in 5 years let the deal run out then let it return to a variable for 1 day in which you can pay a large lump sum without a penalty. Thats if we have any money.

I have 3 pensions but they aren't coming to much, 1 matures in 3 years only giving 3k a year, but it'll help. The other two pensions don't mature till I'm 70 lol! However they all have a surrender value which I could use if we get stuck.

Do you think it's worth going to a broker? Nothing to loose I suppose.

pinknsparkly

You've got plenty of time on your hands to go to a broker (by which I mean your mortgage rate isn't about to shoot up so you've got the time to get a broker to have a good look around for you). You can get fee-free brokers (I've used London and Country in the past, though we didn't actually end up getting a mortgage through them).

Is there a time limit on your offer from Barclays? I would always say that it's worth speaking to broker. The worst they can do is say that the best offer they can find is the one from Barclays, and may well be able to get you a better offer. Every tiny reduction in interest rate is more money that you can use for overpayments instead of interest!

getmore4less

You need your new product to have a long a full term as possible to avoid going round the same loop again but older along with the risk of affordability getting poorer.

boomish

Thanks again for the replies, I can't think you enough for taking the time out , it means huge amount to us.
No time limit he said, the rate may change but the loan is agreed in principal, next step is to submit it to the underwriters but once we do that it goes through he said. They may come back with a provision that we pay some off anyway. We have decided I think to pay off 25k to cut the interest down.

I'll have a look at brokers in case there is a better deal, the Barclays rep said he doubts we will get interest only anywhere else. We'd go longer as you say Getmore4less (you guys have great names), but the 7 year deal wanted 5% ERC, thats a lot I thought. Hopefully we can save like overpay and save like mad over the next 5 years..:)

Thanks again for the support, what an amazing forum this is, if I find a deal I'll post back in case it helps anyone else.

pinknsparkly

The 5% ERC for Barclays is fairly unusual - when I was looking for mortgages, the ERC on most mortgages decreases as the years proceed (e.g. for a 5 year fixed rate you might pay 5% ERC in year 1, 4% in year 2, 3% in year 3 etc). So a broker may be able to find you a mortgage with more forgiving ERCs. On the flip side, if you do manage to overpay enough to hit your fee-free overpayment limit then you can save the money in a separate and make a lump overpayment at the start of the next year when your limit resets. As your mortgage gets smaller, it's more likely that you'll hit the limit.

boomish

An old post but I thought I'd update it in case it helps others, we decided to wait till after Brexit in the end after speaking to a few brokers. Not sure if that was a good idea or not now I think the offers are around the same if not a little lower. Now we have to act only 3 months left and hunting for a deal. Ideally something interstate's Only but I doubt we will get it, and long term so we don't have to go through this loop again. However we may sell in 5 years (I'll be 63) so don't want to be paying out large fee's. L&C are calling today to discuss, I spoke to a Barclays Mortgage advisor but he was quite abrupt and in my opinion rude , I know we aren't boring much but customer service was so poor.
Fingers crossed we can find a deal.