Help please.

hushpuppy

Sorry about the length of this, I have tried to explain it as breifly as possible.

For some time we have been thinking of how we can look after our parents when they get older and as such we deceided to buy a nice big property that also has a granny annex. In order to do this each of our mothers are going to give us £150K, one lump sum now and the other in about 12 - 18 months time. Here is where I need advice.

The property we are buying is £700,000. Ours has sold for £490,000, with a current mortgage of £113,000, with 9 years left to go on it. Until we get the second £150,000, we will need to extend our current mortgage to £240,000. Our current mortgage is with the Nationwide fixed until June 2008 at 4.48% and to surrender it will cost £600 early redemption fee.

As we can't afford for our mortgage payments of about £1300 per month to increase, Nationwide suggest that we port our current mortgage to the new property until the deal expires, but increase the term to 30 years. At the same time take out a second mortgage fixed for two years on a tracker rate of 5.68 again over 30 years, so that our combined payments add upto £1300. Then when our current two year deal expires in June 2008, take out another two year product, again over about 30 years so the two "new" products run in parallel with a combined monthly payment of £1300.

When therefore, our first two year deal expires in Feb 2010, we should have received the second £150K gift, which will completely pay off that mortgage, leaving about £20K surplus to pay off part of the second mortgage when that deal expires in June 2010, thereby leaving us with about a £85K mortgage, hopfully putting us back on track to have it paid off by Oct 2018.

I suppose what I am asking advice on is:
1. do you think this is a sensible way of doing this?
2. Am I in fact going to be worse off? (On my current mortgage of £113,000 at a fixed rate of 5.68% what would be the amount outstanding in June 2010 if I was paying £1300 per month) If it is below £89,000 then I will be but don't know how to work that out!
3. Is there a better suggestion or way of doing this?
4. Am I allowed one mortgage with one lender and another witha a different lender on the same proprty?

Any advice would be graetly appreciated.

poppy10_2

hushpuppy wrote: »

my current mortgage of £113,000 at a fixed rate of 5.68% what would be the amount outstanding in June 2010 if I was paying £1300 per month

By my calculations, £90,000

herbiesjp

Are you sure the early repayment charge is only £600? Should that be £6k?

hushpuppy

herbiesjp wrote: »

Are you sure the early repayment charge is only £600? Should that be £6k?

According to the Nationwide Advisor, as we will only have 4 months left to run on the £113K mortgae he said £600, (but I will now double check)!

herbiesjp

Maybe it's me under the influence of flu, but some of the figures/timelines you state above do not quite add up - but I'm sure these would get ironed out when explained to an adviser

If the penalty cost is only £600, it may be wiser to look to re-mortgage all the amounts onto a new deal with another lender. I say may, as it would involve looking at the figures closely, to see if it works in your favour.

The problem you have is that on the above scenario you are always on different schemes with two different end dates which impacts on the overall flexibility/options that that gives you.

You say you cannot afford payments to go over £1300 - however by taking a tracker rate onthe second part, your repayments could well go over £1300 - it all depends on which way interest rates go.

Also you say in June 2008 you will get another deal to run in parallel, however there will still be a period of time when the first deal expires, and you are still waiting on the second deal to expire - this would mean running for a period of time on Standard Variable rate for some months - this could mean costs going over £1300 pm again

Could you look at a 2 year deal for a mortgage amount of £240,000 - with say £150k on an interest only basis, and the rest on a repayment basis. As you will be clearing £150k within 2 years, this will be one way of keeeping costs low for you. It keeps all balances neatly together on one mortgage account, to allow greater choice should you want to look at new deals or re-mortgaging at later dates

This all depends primarily on the penalty and how much it is. If it is £600 whether you think paying it would improve the options available to you and make it easier to keep track of your mortgage

hushpuppy

Once again thanks for the advice.

With regards to the £600 early redemption charge I got that figure from the Nationwide KFI they produced for me.

I think that is this figure is correct then maybe your last suggestion of paying of that mortgage early and taking on a new two year deal for the whole £240K with £150K to run as interest only is a good idea. Looking in the MoS the Newcastle has a 2 year 5.45% deal, which based on £130K interest only and £110k full repayment gives me a monthly figure of £1262.10 and a total spend over the two years as 1262.10 x 24 + 1200 (600 early redemption and 600 set up) as £31,420, which is way cheaper than doing it the way Nationwide have suggested (below).

However what I must try and figure out is what the total cost of doing the above is over two years would be against continuing with my current deal and paying £568 until June 08 on the £113K part, then taking out a new deal fixed for 2 years until June 10, for £113K, plus starting the new mortgage for £127K at £739 a month, (plus £600 set up fee).

I have worked it out as £568 x 6 (months) = £3408 + £600(fee) + (739 x 24 months) = £18336 + (20 months at £658) = £13160 = £35504. (Assuming an interest rate of 5.68 on the 739 and 658 figures over 30 years) this is to keep the monthly figure at about £1300

What I would need to work out is do I Fix or Tracker, I usually fix, but my gut tells me to opt for a tracker this time, simply because the latest in the press is that interest rates have reached their peak? (But who knows??) Then again there is always the off set option, but don't really know enough about them.

Any further advice would be greatly appreciated.