Help and Guidance

EssexHebridean

confusedftb wrote: »

so, spoke to the lender and was told that i can only pay £999.99 per calendar month.
any more and the early repayment will be charged.

if i start paying £999.99 per month, how will it work? will it lower the number of years or will it lower the interest period? how does it work, sorry if it sounds silly but i find it difficult to understand

Yes - that matches with the detail that was posted in the thread previously, doesn't it.

When you make the overpayment state that you want them to leave your current monthly contractual payment at the same level. I personally after experience where this request was ignored would put this in writing, signed by both parties to the mortgage, and stating that it is to be the case "until further notice, in writing" also. Retain a copy of the letter and note on it the date that you post it to them. You will need to establish how they look at the contractual payment however - whether they will take a proportion of that as also being an "overpayment" or not, once the capital balance starts falling.

When you're OP'ing on a mortgage you have to think about the longer term picture - so the extra you throw at your mortgage now won't make any odds to you immediately - but in the longer term you will be paying a lot less interest.

As a rough guideline.
If you pay your standard payment of £950 a month ONLY - when you reach the 60 month point you will still owe £188k.
If you increase your payment by £100 a month - so paying £1050 per month, - when you reach the 60 month point you will owe £182k.
If you increase your payment by £550 a month - so paying £1500 a month - when you reach the 60 month point you will owe £154k.
That changes your LTV when you reach the point when your current fix expires and means that you are potentially going to be eligible for a better interest rate at that stage.

That is just a quick and dirty calc done through my own spreadsheet that we used to use with the details altered to roughly right for you.

I think the Nationwide Building Society website has a calculator you can play around with to see for yourself the impact of overpaying early.

You can't predict now the sort of interest rate you will be able to get when your deal changes in 5 years time - however it is likely that interest rates then will not be as low as they are now - so putting yourself in the best possible position at that stage makes sense.

confusedftb

EssexHebridean wrote: »

Yes - that matches with the detail that was posted in the thread previously, doesn't it.

When you make the overpayment state that you want them to leave your current monthly contractual payment at the same level. I personally after experience where this request was ignored would put this in writing, signed by both parties to the mortgage, and stating that it is to be the case "until further notice, in writing" also. Retain a copy of the letter and note on it the date that you post it to them. You will need to establish how they look at the contractual payment however - whether they will take a proportion of that as also being an "overpayment" or not, once the capital balance starts falling.

When you're OP'ing on a mortgage you have to think about the longer term picture - so the extra you throw at your mortgage now won't make any odds to you immediately - but in the longer term you will be paying a lot less interest.

As a rough guideline.
If you pay your standard payment of £950 a month ONLY - when you reach the 60 month point you will still owe £188k.
If you increase your payment by £100 a month - so paying £1050 per month, - when you reach the 60 month point you will owe £182k.
If you increase your payment by £550 a month - so paying £1500 a month - when you reach the 60 month point you will owe £154k.
That changes your LTV when you reach the point when your current fix expires and means that you are potentially going to be eligible for a better interest rate at that stage.

That is just a quick and dirty calc done through my own spreadsheet that we used to use with the details altered to roughly right for you.

I think the Nationwide Building Society website has a calculator you can play around with to see for yourself the impact of overpaying early.

You can't predict now the sort of interest rate you will be able to get when your deal changes in 5 years time - however it is likely that interest rates then will not be as low as they are now - so putting yourself in the best possible position at that stage makes sense.

great explanation. getting to understanding this beast a little now.

at the moment my LTV is 80%.

When i get to the end of 5 year fixed, my aim would be to remortgage at atleast 50-60%.

You are absolutely correct in saying that i will have £188k at the end of 5 year.

When it comes to remortgaging how will the LTV be calculated, on the price i bought the house or they will carry out a new valuation?

I will be very pleased if i could overpay and bring the amount down to £150k at the end of 5 years.

EssexHebridean

It would be a new valuation if taking out a new mortgage with a different lender at the end of the 5 years. If you stay with your current lender and just take a new deal, they will likely not insist on a formal re-valuation but will assess based on the price you paid.

This is why when a fixed term deal ends, and particularly when you are overpaying as well, it's always worth balancing a possible saving in interest from a different lender against the additional fees that you have to pay for that. A new deal from your existing lender will come with far less costs associated.

enthusiasticsaver

confusedftb wrote: »

i do not have pension, my partner does have it. we are in our early 30s. i just don't like the idea of pension i don't know why.

How do you intend funding your retirement then? Investing in a pension is the most tax efficient way of saving. Even if you are on a fixed term contract you could still get an employers contribution (dependent on earnings) as well so you are turning down free money.

monetxchange

Just something to keep in mind regarding your “not liking the idea” of a pension, this kind of head in the sand view could have a massive impact on your children’s lives later on.

As an example, a friend of mines mum is at retirement age, not in good health at all and still trying to work. She doesn’t have a penny saved for retirement. A small private pension was drawn down and blown a few years back. Doesn’t even have full contributions for a full state pension due to employment gaps. The reality is, one of her kids is going to have to take her in, look after her and pay all her living costs. These are people in their early 30s trying to enjoy their own independence, set up their own homes with their kids. Now they can’t enjoy that freely due to their parents financial irresponsibility. Would you want to be a burden on your kids because you didn’t like the idea of a pension? Say you live until you’re 90 and can’t work from 65 - that’s 25 years you’re going to be dependent on somebody. It’s just not fair.

Saving for a pension isn’t morbid or a waste of time. It’s just good sense. Put it aside at the beginning of the month and forget about it. It’s one of the best investments you’ll ever make. Good luck on the rest of your debt clearing journey!