Re-mortgage with DMP

latte55

Hello. I need some advice please on a re-mortgage with a DMP and I’m not sure how to proceed.

We have an interest only mortgage and have had since 2007 – we moved house just as all the banks crashed. The fixed term is long gone and we are paying just the current interest rate, which has been good over the past few years. However I’m concerned that we have been paying this for 12 years and don’t have anything in place to pay the capital once the term ends so I want to re-mortgage to a repayment mortgage.

Our DMP has been on-going for a number of years and I’ve received a small inheritance that I’d like to use to pay off our creditors – will be working through full and final settlements this weekend. If the offers are accepted and everything is paid off I’m aware that our credit report will still show the defaults until 6 years has passed. For the majority of the debts this will be in 2021. There is one that wasn’t defaulted by the company for some reason until 2017 so will be 2023 before it’s gone. We don't have any CCJ's. Our mortgage has always been paid on time.

I have been in touch with a broker who has advised that even in our current position, we have a decision in principal with for a 5 year fixed rate on a 19 year term mortgage. It’s not a very good rate, which I fully expected but the monthly payment is affordable. There’s also a £2k fee for the broker.

So, my question is – should I wait two years for the majority of defaults to clear my credit file and then look at mainstream lenders or should we go for this 5 year fixed rate and then look at different lenders after the term? Once our debts are settled (assuming the creditors will accept our offer) we will be almost £500 per month better off from the amount we are paying towards the DMP just now. This will cover the expected increase in the mortgage.

How much of the actual capital is typically reduced over 5 years? Wondering if it’s worth doing now to try and reduce the capital but I’m also worried that we will then to need to start all over again when the 5 year term finishes. I’ll be 45 this year, in a stable job (as much as anyone can be, been with them almost 25 years) but still very concerned that essentially we don’t own a brick of our home and time is ticking by. Secondary concern is what the interest rates might look like in 2 years time if we leave it too long.


I know there are lots of ifs and buts in here but I don't want to jump into the wrong mortgage deal if we have some time to play with.


thanks in advance for your help

ACG

If the rate on the new mortgage is more than your current mortgage, just make overpayments on your current mortgage?

No broker fee to pay and a lower rate.

Work out the balance and divide that by the number of years you want to pay the mortgage over and then by 12 (months) that is how much you need to overpay by (roughly). Your interest only mortgage may expire before that term is up, but if you have it until 2021 at least, then I think I would be inclined to stick with it and overpay until your credit report starts to look a little better.

JayCeeEssex

It's definitely 'crystal ball' time here!
Perfectly true that if you have been in a well run DMP then there are mortgage deals available to you. OK, as you have alluded to, the rates being offered for a five year fix are non too 'sexy', but they are giving you the stability of your outgoings whilst in this unenviable situation.
So, what is the likely effect of Brexit on Interest rates? The reality is no one really knows at this juncture it is all speculation and guesswork. Most in the industry feel that we might see a rate hike of perhaps 2 percent over the next 2-3 years. Some are predicting no rate change at all and others are saying up to 5%!
You have to weigh up what this is costing you.
a) a broker fee of £2,000 (ouch that is a lot!)
b) lender product fee (probably about £995 - £1500 ish)
c) Valuation fee (probably £200)
d) Conveyancing fees (probably a further £600)
Now consider how much you would potentially 'save' with this new deal over what you are presently paying on a variable rate.
Two years is not such a long way off, yes, of course a lot could change rate wise in the next two years, but will it genuinely cost you close on £4,000 (if my guesstimates are accurate) if you stay put and look to going 'High Street' in a couple of years?
Food for thought!

[Deleted User]

Did the broker discuss doing a product transfer with your current lender and then overpaying as ACG suggested?

If product transfer is an option and they were a half decent lender it would most likely be cheaper to do it that way

Also, where are all these clients willing to pay £2k fee for mortgage advice?? Can i have a few of them please

latte55

ACG wrote: »

If the rate on the new mortgage is more than your current mortgage, just make overpayments on your current mortgage?

No broker fee to pay and a lower rate.

Work out the balance and divide that by the number of years you want to pay the mortgage over and then by 12 (months) that is how much you need to overpay by (roughly). Your interest only mortgage may expire before that term is up, but if you have it until 2021 at least, then I think I would be inclined to stick with it and overpay until your credit report starts to look a little better.

Thanks for your reply. We can't change the product. The lender isn't trading anymore and it's a management company that manages the payments. I've already been in touch with them re changing the product.

JayCeeEssex wrote: »

It's definitely 'crystal ball' time here!
Perfectly true that if you have been in a well run DMP then there are mortgage deals available to you. OK, as you have alluded to, the rates being offered for a five year fix are non too 'sexy', but they are giving you the stability of your outgoings whilst in this unenviable situation.
So, what is the likely effect of Brexit on Interest rates? The reality is no one really knows at this juncture it is all speculation and guesswork. Most in the industry feel that we might see a rate hike of perhaps 2 percent over the next 2-3 years. Some are predicting no rate change at all and others are saying up to 5%!
You have to weigh up what this is costing you.
a) a broker fee of £2,000 (ouch that is a lot!)
b) lender product fee (probably about £995 - £1500 ish)
c) Valuation fee (probably £200)
d) Conveyancing fees (probably a further £600)
Now consider how much you would potentially 'save' with this new deal over what you are presently paying on a variable rate.
Two years is not such a long way off, yes, of course a lot could change rate wise in the next two years, but will it genuinely cost you close on £4,000 (if my guesstimates are accurate) if you stay put and look to going 'High Street' in a couple of years?
Food for thought!

That makes sense, thanks. I think we're thinking we should wait, just wanted to check what else was involved. Thanks for your advice.

Deleted_User wrote: »

Did the broker discuss doing a product transfer with your current lender and then overpaying as ACG suggested?

If product transfer is an option and they were a half decent lender it would most likely be cheaper to do it that way

Also, where are all these clients willing to pay £2k fee for mortgage advice?? Can i have a few of them please

Thanks for your help, we can't change the product. Honestly, I thought that we'd have to just deal with the fee for the broker because of our situation.

ACG

You do not need to change products, if the rate is better than what you can get elsewhere, just make over payments.

latte55

ACG wrote: »

You do not need to change products, if the rate is better than what you can get elsewhere, just make over payments.

Thanks, I didn't know you could do this.


I've just spoken to the lender. They will allow overpayments, but the minimum is £2k and they will charge £65 for each overpayment.


This is something to think about and maybe our best option once we get our DMP out of the way. We could save that money and overpay, meaning we'll have a bit less capital left when we come to re-mortgage hopefully in 2 years time when our file looks a bit better.


Thanks for your advice, really appreciate it as this has all been giving me a headache for years.

ACG

Have a look if that £2k minimum and £65 in in your mortgage offer. It sounds very odd for a lender to do that and if it is not in your original terms, you could argue it.

Failing that, saving up the money and making lump sum overpayments means you can make 30 overpayments before you get close to the £2k fee the broker wants to charge and that is before any fees the new lender charges.

If we assume your payments on the new mortgage would be £300 a month more, just put £300 a month in to a savings accounts and then make a lump sum overpayment each year? £3,600 coming off the balance each year. In 2-3 years once your credit file has cleared up you will can then look to get a new mortgage at normal rates.

You have avoided paying the broker £2k, the lender maybe £1k, potentially legal and valuation fees, a higher interest rate and all it has cost you is £65 x 2 or 3. As the saying goes, there is more than one way to skin a cat and so long as the end result is the same (ie a £0 mortgage balance), it does not matter how you get there even if it is unconventional.

latte55

That’s what we’re thinking now too. If we can get the balance down over the next couple of years we’ll be a better position. Many thanks for your help

Thrugelmir

ACG wrote: »

Have a look if that £2k minimum and £65 in in your mortgage offer. It sounds very odd for a lender to do that and if it is not in your original terms, you could argue it.

£2k minimum is most likely to make in economic. To provide an ad hoc service somebody needs to be employed.

sammyjammy

With regards to the Default not registered until 2017 make a complaint and ask them to backdate it, its reasonable to expect them to default you within six months. Stick a post on the Debtfree wannabe board about it and they'll advise further.