Overpayment query for two mortagages

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Quick query I was hoping someone cleverer than me may be able to help with!
I moved house in September and as part of this had to port an existing mortgage on a fixed rate (expires January 2021) as well as take out a new 'top-up' mortgage on a tracker product. This was to avoid early repayment charges. 
I therefore now have two sets of borrowing against the our new house.
With the fixed rate on one ending in January I am now aligning both sets of borrowing onto the same 2 year fixed rate deal. So essentially what I will have going forward is:
One mortgage of £115,412 on 1.69% for 2 years.
One mortgage of £97,608 on 1.69% for 2 years. 
They would also both revert to the same standard variable rates after the 2 years. 
I have complete flexibility regarding making overpayments (no 10% restrictions of anything like that), and plan to make substantial overpayments over the next few years (both lump sum and regular). My question is therefore whether there is any financial advantage to overpaying on one compared to the other? Does it work out better overpaying on the higher level of borrowing, or the lower? Or now they are both aligned does it fundamentally make no difference in terms of interest charges. 
Any help appreciated!
Andy


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  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    Are the mortgage terms the same? 

    As both will be on variable rates on the 1st February it shoul be possible to consolidate your mortgage into one product. 

  • AndyJR
    AndyJR Posts: 17 Forumite
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    Yes both mortgage terms are the same. 
    I'm not changing mortgage provider, (i.e. remortgaging) so advice was I can't consolidate into one mortgage.... Just doing a rates transfer with existing provider, hence aligning both  sets of borrowing onto the same mortgage product/rates. The minimum monthly payments overall are the same either way, whether consolidated or not - it just goes out in two smaller payments.  
    Does that make sense?
    But reason for my post was I wasn't sure if there might be some benefit I'm not realising of overpaying on one set of borrowing compared to the other. 
  • getmore4less
    getmore4less Posts: 46,882 Forumite
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    If both are the same rate it makes no difference to the cost(interest saving) as there are no overpayment limits(if there were then that would need assessing)

    Term is not relevant as it is the payment that actually determines the costs,
    With different terms you may have considered overpaying all on the shorter term as that has the advantage of lowering contractual payments slightly quicker,

    They key here are the fees associated with getting lower rates
    You have not  said which lender so can't look up the options.

    You are borrowing enough(£200k+) that a fee based product is likely to be cheaper over the 2 years   but if they assess fees on each part then it may be that the no fee/higher rate will be better.
  • AndyJR
    AndyJR Posts: 17 Forumite
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    Thanks you your reply and good point about the fees.
    It is with First direct. I could get a 1.69% for 2 years for £490 booking fee (I'm 75% loan to value). Or I could get  1.99% 2 year fixed with no booking fee. Therefore with the level of borrowing the 1.69% over two years worked out as the slightly better deal, by £200 or so. I've confirmed the booking fee would only be charged once for aligning both sets of borrowing onto the same product. If it was charged twice it would be best to have gone for the 1.99% fee saver. Would you agree?

    Thanks for confirming there is no difference in terms of which I overpay against. I thought that was the case but just wanted to make sure!
  • getmore4less
    getmore4less Posts: 46,882 Forumite
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    I think you have your calculations wrong if you think the saving is £200

    Interest only(the max saving) saving would be nearly £800
    £213,490.00 1.69% £353.23 £212,207.92
    £213,000.00 1.99% £353.23 £213,000.00

    That reduces depending on actual payment but even with substantial overpayments it will be over £600
    £213,490.00 1.69% £3,000.00 £147,645.81
    £213,000.00 1.99% £3,000.00 £148,251.11

    The break even mortgage size for those rates/fees starts at around £80k(I/O) and goes upto around  £100k(5y term) depending on payment

    Even with 2x £490  fees the lower rate with fee would have been better for both bits.
    There would  probably be a case for fee on the larger amount and no fee on the lower amount directing all overpayments there if they are going to be big enough but don't need to do that as there is only one fee,




  • AndyJR
    AndyJR Posts: 17 Forumite
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    Afraid to say I don't really follow your maths, but would like to. But I'm not that experienced with mortgages and certainly no expert. At least we're getting to the right answer in that the 1.69% is the better rate even with fees! It is a repayment mortgage.

    To make my decision I worked out the difference over only the 2 year fixed period, on the assumption that at the end I would swap to another product (either at first direct, or remortgage elsewhere). 

    I have a 30 year term (as I figured it doesn't really matter how long the terms is when you have unlimited overpayments). Over the two years fixed period i worked out the following based on £213,000 total borrowing. 

    1.69% rate: £754.68 minimum monthly payment + 490 fee = £18,602.36 total cost over the deal period
    1.99% rate: 786.22 minimum monthly payment = £18,869.39 total cost over deal period

    So assuming no overpayments the 1.69% saves me about £267 over the 2 year deal period, even factoring in the fee. 
    I worked out I would have to have the mortgage down to just below the £145,000 level before the the 1.99% rate would start to look better. So even with ambitious overpayments over the 2 years, the 1.69% rate is going to be better. 

    Does that make sense, or am I working it out all wrong....! Genuinely interested. 

    Either way thank you for confirming that it doesn't make a difference whether I overpay on the £115,500 or £97,500, which is useful so thank you for that. 

  • AndyJR
    AndyJR Posts: 17 Forumite
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    Sorry got the last above wrong. Being more specific I worked it out that the mortgage would have to be down at £137000 at the start of the 2 year fixed period for the 1.99% rate to begin to be more attractive as a two year deal (i.e. lower interest payments on a smaller loan mean paying the £490 fee is no longer a better option. 
  • getmore4less
    getmore4less Posts: 46,882 Forumite
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    edited 26 November 2020 at 7:21AM
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    You can't use the payment to work it out as that has capital and interest.

    Even on the lower rate with a lower payment you pay off more capital over the 2 years.

    You have to take account of the amount owing after the 2 years.

    The easiest way to compare is to add the fees make the payment the same and see how much is left. 
    Thats what I posted 
    Amount, rate, payment, after 2 years. 

    If planning to overpay then using a planned payment rather than the one based on term gets a better answer.

    A very simple first guess is the base interest only check. 
    Amount * rate difference * years
    £213,000*0.003*2=£1278

    When that is a lot more than the fee then fee is better even on repayment. 

    It is a common error people make because some of the calculators available do it wrong or are misleading using payment comparisons. 

    When comparing, if paying fees up front it is just an overpayment so take it off both. 

  • badmemory
    badmemory Posts: 7,905 Forumite
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    If both rate & term are the same then there is no financial advantage to paying either off.  However there could be a mental advantage, so my thought would be pay off the smaller one & get rid of it.  That way only one mortgage, which could make your next move easier, no third mortgage!
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