Mortgage broker - ask me anything

jen_fpb

jen_fpb said:

silvercar said:

jen_fpb said:

silvercar said:

jen_fpb said:

silvercar said:

jen_fpb said:

Thanks both.

Have been looking at fee free as because we are 100% off setting the interest rate isn't mich of a concern. 

Unsure on your last point about how low we want to take the balance and interest only, are you able to explain?

If you are interest only, you have no monthly repayments to make if fully offset. So how low you want the balance to be is effectively the maximum amount you want available to you, if you suddenly needed access to the money. 

If you have a repayment mortgage then you are repaying the capital each month, so the balance would naturally fall over time.

@silvercar sorry. I'm still not understanding are you able to explain a bit more with a worked example?

Say your interest rate is 5% and your mortgage is £200k.

Assume fully offset.

Interest only. The interest charged would be £833 a month if you were not offsetting at all, but you are offsetting fully so you pay nothing. End of 2 years the mortgage balance is still £200k and you've paid nothing for 2 years. Effectively the money is there waiting for you if you want to take it out and start paying interest on it. 

Repayment mortgage. (a) monthly repayments would be £1,169 a month. You are fully offset, so all that money would go to repaying the capital borrowed. At the end of 2 years, you would have repaid 24 x 1,169 = approx 28k. so your outstanding balance would be £172k. (b) (Some lenders may instead allow you to make reduced monthly repayments, based on not paying the interest on the offset balance and so would charge you less per month and the remaining balance owed would then be higher eg reduced repayments of £336 as no interest charged, so the balance reduces to £192k at the end of 2 years). Either way the balance owed on the mortgage drops and your savings in the offset mortgage stay intact. 

Thank you!

This makes sense.

If we do interest only do we just choose how much we want to pay each month? Is there any point in 100% offsetting on an interest only mortgage? 

We’ve been 100% offsetting for years, occasionally dipping into the savings when we need to and then building it back up. 2 big pluses:

1.  The value of 100% offsetting is that the money is there to be taken if you need it, so it can be your rainy day money. Whereas you may not want to not have a mortgage and to have no savings.

2. The value in offsetting vs taking a mortgage and having a savings account elsewhere is the interest rate difference eg if you can borrow at near the rate you are getting on savings, especially for a higher rate tax payer, it makes sense, particularly taking together with the above point. There is no interest paid to you on an offset, so you won’t be hit with a tax bill as you would on a savings account. Eg £200k in an offset with a 5% interest rate costs you nothing in interest. Take a plain mortgage at 5% and you would pay interest of £10k a year (simple calculation, I know repayments make this a slightly different number). Savings of £200k in a fixed rate of 5% would pay you £10k, but you would pay tax on 9k of that at your marginal tax rate so would lose £3,600 (higher rate 40% tax) of it leaving you with £6,400.

Thanks! Point 1 is defo for us as I don't want to be left with very little savings.

Not a High Rate Tax Payer.

Just need to see if repayment or interest mortgage is best.

If its interest only how do you decide how much to pay each month? Any advice as to the pros/cons of repayment or interest only on an offset if we are 100% offsetting? 

silvercar

jen_fpb said:

jen_fpb said:

silvercar said:

jen_fpb said:

silvercar said:

jen_fpb said:

silvercar said:

jen_fpb said:

Thanks both.

Have been looking at fee free as because we are 100% off setting the interest rate isn't mich of a concern. 

Unsure on your last point about how low we want to take the balance and interest only, are you able to explain?

If you are interest only, you have no monthly repayments to make if fully offset. So how low you want the balance to be is effectively the maximum amount you want available to you, if you suddenly needed access to the money. 

If you have a repayment mortgage then you are repaying the capital each month, so the balance would naturally fall over time.

@silvercar sorry. I'm still not understanding are you able to explain a bit more with a worked example?

Say your interest rate is 5% and your mortgage is £200k.

Assume fully offset.

Interest only. The interest charged would be £833 a month if you were not offsetting at all, but you are offsetting fully so you pay nothing. End of 2 years the mortgage balance is still £200k and you've paid nothing for 2 years. Effectively the money is there waiting for you if you want to take it out and start paying interest on it. 

Repayment mortgage. (a) monthly repayments would be £1,169 a month. You are fully offset, so all that money would go to repaying the capital borrowed. At the end of 2 years, you would have repaid 24 x 1,169 = approx 28k. so your outstanding balance would be £172k. (b) (Some lenders may instead allow you to make reduced monthly repayments, based on not paying the interest on the offset balance and so would charge you less per month and the remaining balance owed would then be higher eg reduced repayments of £336 as no interest charged, so the balance reduces to £192k at the end of 2 years). Either way the balance owed on the mortgage drops and your savings in the offset mortgage stay intact. 

Thank you!

This makes sense.

If we do interest only do we just choose how much we want to pay each month? Is there any point in 100% offsetting on an interest only mortgage? 

We’ve been 100% offsetting for years, occasionally dipping into the savings when we need to and then building it back up. 2 big pluses:

1.  The value of 100% offsetting is that the money is there to be taken if you need it, so it can be your rainy day money. Whereas you may not want to not have a mortgage and to have no savings.

2. The value in offsetting vs taking a mortgage and having a savings account elsewhere is the interest rate difference eg if you can borrow at near the rate you are getting on savings, especially for a higher rate tax payer, it makes sense, particularly taking together with the above point. There is no interest paid to you on an offset, so you won’t be hit with a tax bill as you would on a savings account. Eg £200k in an offset with a 5% interest rate costs you nothing in interest. Take a plain mortgage at 5% and you would pay interest of £10k a year (simple calculation, I know repayments make this a slightly different number). Savings of £200k in a fixed rate of 5% would pay you £10k, but you would pay tax on 9k of that at your marginal tax rate so would lose £3,600 (higher rate 40% tax) of it leaving you with £6,400.

Thanks! Point 1 is defo for us as I don't want to be left with very little savings.

Not a High Rate Tax Payer.

Just need to see if repayment or interest mortgage is best.

If its interest only how do you decide how much to pay each month? Any advice as to the pros/cons of repayment or interest only on an offset if we are 100% offsetting? 

Interest only leaves you in complete control. If you are 100% offset you don’t pay anything! If you want to build up some savings for when the mortgage is cleared in eg 25 years time, you pay into the highest savings account you can find, so you can benefit from the interest that account pays you.

squigglebit

Looking for a first time buyer mortgage.
Both self employed. I have a more stable income as am a contractor.
we have a £26k deposit and looking to buy a £225k house.
One of us has excellent credit, and the other poor. What is our best way to approach this? 

K_S

squigglebit said:

Looking for a first time buyer mortgage.
Both self employed. I have a more stable income as am a contractor.
we have a £26k deposit and looking to buy a £225k house.
One of us has excellent credit, and the other poor. What is our best way to approach this? 

@squigglebit You’re looking to borrow around 200k at 90% LTV. What the best route is depends on a few factors 
- what exactly you mean by ‘poor’ credit and what’s on their credit reports
- how big your sole income is 
- how important is it for both your names to be on the deeds (vast majority of cases, the names on deeds = names on mortgage)
- specifics of both income types
- source of deposit

If the partner has multiple defaults on their file and you’re an experienced day rate contractor earning £500/day, then the “best rate” is likely to be one where you apply in your sole name. Otoh if the poor credit is just a couple of missed payment markers in the last 2-3 years then having the partner on/off the mortgage might not make any difference.

jen_fpb

silvercar said:

jen_fpb said:

jen_fpb said:

silvercar said:

jen_fpb said:

silvercar said:

jen_fpb said:

silvercar said:

jen_fpb said:

Thanks both.

Have been looking at fee free as because we are 100% off setting the interest rate isn't mich of a concern. 

Unsure on your last point about how low we want to take the balance and interest only, are you able to explain?

If you are interest only, you have no monthly repayments to make if fully offset. So how low you want the balance to be is effectively the maximum amount you want available to you, if you suddenly needed access to the money. 

If you have a repayment mortgage then you are repaying the capital each month, so the balance would naturally fall over time.

@silvercar sorry. I'm still not understanding are you able to explain a bit more with a worked example?

Say your interest rate is 5% and your mortgage is £200k.

Assume fully offset.

Interest only. The interest charged would be £833 a month if you were not offsetting at all, but you are offsetting fully so you pay nothing. End of 2 years the mortgage balance is still £200k and you've paid nothing for 2 years. Effectively the money is there waiting for you if you want to take it out and start paying interest on it. 

Repayment mortgage. (a) monthly repayments would be £1,169 a month. You are fully offset, so all that money would go to repaying the capital borrowed. At the end of 2 years, you would have repaid 24 x 1,169 = approx 28k. so your outstanding balance would be £172k. (b) (Some lenders may instead allow you to make reduced monthly repayments, based on not paying the interest on the offset balance and so would charge you less per month and the remaining balance owed would then be higher eg reduced repayments of £336 as no interest charged, so the balance reduces to £192k at the end of 2 years). Either way the balance owed on the mortgage drops and your savings in the offset mortgage stay intact. 

Thank you!

This makes sense.

If we do interest only do we just choose how much we want to pay each month? Is there any point in 100% offsetting on an interest only mortgage? 

We’ve been 100% offsetting for years, occasionally dipping into the savings when we need to and then building it back up. 2 big pluses:

1.  The value of 100% offsetting is that the money is there to be taken if you need it, so it can be your rainy day money. Whereas you may not want to not have a mortgage and to have no savings.

2. The value in offsetting vs taking a mortgage and having a savings account elsewhere is the interest rate difference eg if you can borrow at near the rate you are getting on savings, especially for a higher rate tax payer, it makes sense, particularly taking together with the above point. There is no interest paid to you on an offset, so you won’t be hit with a tax bill as you would on a savings account. Eg £200k in an offset with a 5% interest rate costs you nothing in interest. Take a plain mortgage at 5% and you would pay interest of £10k a year (simple calculation, I know repayments make this a slightly different number). Savings of £200k in a fixed rate of 5% would pay you £10k, but you would pay tax on 9k of that at your marginal tax rate so would lose £3,600 (higher rate 40% tax) of it leaving you with £6,400.

Thanks! Point 1 is defo for us as I don't want to be left with very little savings.

Not a High Rate Tax Payer.

Just need to see if repayment or interest mortgage is best.

If its interest only how do you decide how much to pay each month? Any advice as to the pros/cons of repayment or interest only on an offset if we are 100% offsetting? 

Interest only leaves you in complete control. If you are 100% offset you don’t pay anything! If you want to build up some savings for when the mortgage is cleared in eg 25 years time, you pay into the highest savings account you can find, so you can benefit from the interest that account pays you.

So could we decide how much to pay each month?

silvercar

jen_fpb said:

silvercar said:

jen_fpb said:

jen_fpb said:

silvercar said:

jen_fpb said:

silvercar said:

jen_fpb said:

silvercar said:

jen_fpb said:

Thanks both.

Have been looking at fee free as because we are 100% off setting the interest rate isn't mich of a concern. 

Unsure on your last point about how low we want to take the balance and interest only, are you able to explain?

If you are interest only, you have no monthly repayments to make if fully offset. So how low you want the balance to be is effectively the maximum amount you want available to you, if you suddenly needed access to the money. 

If you have a repayment mortgage then you are repaying the capital each month, so the balance would naturally fall over time.

@silvercar sorry. I'm still not understanding are you able to explain a bit more with a worked example?

Say your interest rate is 5% and your mortgage is £200k.

Assume fully offset.

Interest only. The interest charged would be £833 a month if you were not offsetting at all, but you are offsetting fully so you pay nothing. End of 2 years the mortgage balance is still £200k and you've paid nothing for 2 years. Effectively the money is there waiting for you if you want to take it out and start paying interest on it. 

Repayment mortgage. (a) monthly repayments would be £1,169 a month. You are fully offset, so all that money would go to repaying the capital borrowed. At the end of 2 years, you would have repaid 24 x 1,169 = approx 28k. so your outstanding balance would be £172k. (b) (Some lenders may instead allow you to make reduced monthly repayments, based on not paying the interest on the offset balance and so would charge you less per month and the remaining balance owed would then be higher eg reduced repayments of £336 as no interest charged, so the balance reduces to £192k at the end of 2 years). Either way the balance owed on the mortgage drops and your savings in the offset mortgage stay intact. 

Thank you!

This makes sense.

If we do interest only do we just choose how much we want to pay each month? Is there any point in 100% offsetting on an interest only mortgage? 

We’ve been 100% offsetting for years, occasionally dipping into the savings when we need to and then building it back up. 2 big pluses:

1.  The value of 100% offsetting is that the money is there to be taken if you need it, so it can be your rainy day money. Whereas you may not want to not have a mortgage and to have no savings.

2. The value in offsetting vs taking a mortgage and having a savings account elsewhere is the interest rate difference eg if you can borrow at near the rate you are getting on savings, especially for a higher rate tax payer, it makes sense, particularly taking together with the above point. There is no interest paid to you on an offset, so you won’t be hit with a tax bill as you would on a savings account. Eg £200k in an offset with a 5% interest rate costs you nothing in interest. Take a plain mortgage at 5% and you would pay interest of £10k a year (simple calculation, I know repayments make this a slightly different number). Savings of £200k in a fixed rate of 5% would pay you £10k, but you would pay tax on 9k of that at your marginal tax rate so would lose £3,600 (higher rate 40% tax) of it leaving you with £6,400.

Thanks! Point 1 is defo for us as I don't want to be left with very little savings.

Not a High Rate Tax Payer.

Just need to see if repayment or interest mortgage is best.

If its interest only how do you decide how much to pay each month? Any advice as to the pros/cons of repayment or interest only on an offset if we are 100% offsetting? 

Interest only leaves you in complete control. If you are 100% offset you don’t pay anything! If you want to build up some savings for when the mortgage is cleared in eg 25 years time, you pay into the highest savings account you can find, so you can benefit from the interest that account pays you.

So could we decide how much to pay each month?

Depends on the lender. With my offset, you either pay what the payment would be if you had no savings or you pay allowing for the savings. As mine is a fully offset (at the moment) interest only mortgage we have no payment to make. For a repayment mortgage the rules must be different.

Jemma01

Hi, what's the formal process for parental contribution to a mortgage after the mortgage had started? (Not a gifted deposit)

What declaration are needed here? A solicitor and informing the lender?

(ETA: I mean overpayments only, not being added to the mortgage)

silvercar

Jemma01 said:

Hi, what's the formal process for parental contribution to a mortgage after the mortgage had started? (Not a gifted deposit)

What declaration are needed here? A solicitor and informing the lender?

Do you mean parent being named on the mortgage, without going on the house deeds? If so, you need to take independent legal advice with a solicitor to understand the implications. Easiest is to use a different partner in the same practice as the solicitor doing the conveyancing. Solicitor will need to verify you have taken your own advice.

K_S

Jemma01 said:

Hi, what's the formal process for parental contribution to a mortgage after the mortgage had started? (Not a gifted deposit)

What declaration are needed here? A solicitor and informing the lender?

@jemma01 Assuming that you're asking about overpaying an ongoing mortgage using money from parents - no declarations, gift letters or solicitor required.

Jemma01

K_S said:

Jemma01 said:

Hi, what's the formal process for parental contribution to a mortgage after the mortgage had started? (Not a gifted deposit)

What declaration are needed here? A solicitor and informing the lender?

@jemma01 Assuming that you're asking about overpaying an ongoing mortgage using money from parents - no declarations, gift letters or solicitor required.

That's what I meant, thanks. Someone on another post said if the mortgage lender finds out, it would be viewed as "fraudulent activity" 😱