Hi There, 2nd Mortgage question

iwearahalo

We've recently remortgaged and gone to a 5 year deal at 1.54% which is great (Nationwide) for us, now we've decided to extend so the route to go down is a 2nd mortgage, the question is our main mortgage is for 18 years 9 months and we pay approx £1120 a month on a £218,000 debt, we require approx £65,000 for the extension and I would like this to be paid in full over 10 years which works out at £643 at 3.54% and is too high for us to do, 
What is the better option?
To extend the smallest loan of £65,000 to manageable and pay more interest ie 17 years at 3.54% and keep my main mortgage as it is.
Or to lengthen my main mortgage to 23 years and lower the payments to approx £911 and in turn have the £65,000 loan at a 10 year rate of 3.54% at £643?
When the 2nd mortgage is over we'd plan on paying the amount on overpaying back on the original debt.
Many Thanks and I hope this isn't too confusing, I just don't want to be backing the wrong horse!

getmore4less

Is that the best rate you can get from nationwide for additional borrowing?
What term is that extra borrowing fixed for?
What LTV does the extra £65k take you too?

iwearahalo

Hi there, yes under £52,000 its 2.89% and above its 3.54%, its fixed for 10 years and I would like it to be that term as I can budget for it and know where I stand, our ltv is near 85% with the loan, their limit.

getmore4less

Why fix for 10y at an 85% LTV rate when within 2 years you will be at a lower 80%/75%LTV   and can do product switch.

2 year fix is 2.84%
in 2 years you will have paid £20k of the main part and £13k off the additional  new LTV  75% before the extension value

2 years options at todays rate for a rate transfer
2.19%(80%LTV) 
1.74%(75%LTV) 

With another 2/3 fix on the extra you probably align the dates with the 5y fix and can get a new rate transfer with fee for both bits.

Seems a bit crazy to fix it for 10 years at a high rate when you drop LTV so quick..

iwearahalo

I'm fearing a huge rate increase.

iwearahalo

Hi there, so you suggest keeping the main mortgage as it is? And putting the £65,000 2nd mortgage at an affordable rate for 2 years and then merge with the main loan or get another deal?

getmore4less

iwearahalo said:

I'm fearing a huge rate increase.

Or guaranteeing you will be paying a high one.

Why are you that worried for your £65k   when you only just fixed £218k for 5y when you could have got a 2.19% for that on 10years

Taking the 2year and paying as if you were on the 10y will give quite a safety net.
£65k 10y term 3.54% is £644pm
 in 2 years time with the 3y fix

amount	rate	payment	owing
£65,000.00	3.54%	£643.98	£53,770.26
£65,000.00	2.84%	£643.98	£52,910.77

that gives 8y to pay it off

amount	rate	payment	owing
£53,770.26	3.54%	£643.98	£0.00
£52,910.77	3.96%	£643.98	-£1.90

You are looking at 75% rates in 2 years which are 1.74(2y) & 1.79(5y) now
There is 2% rises safety built in.

If mortgage rates go up 2%+ in 2 years then  a lot of people are in a lot of trouble,

if you want more safety you could take it over a longer period and pay as if trying to pay it off in 10y

If they will also let you extend your main mortgage do that for as long as you can and use that money on the new borrowing to get that down quicker.

If this level of payment is a struggle can you really afford the extension?

iwearahalo

We can afford £1550 a month, after that we'll struggle with other things, if we keep our current main mortgage we'll have cleared £20,000 but that means staying at the same rate, if that stays then the 2nd mortgage has to be at a level with the main mortgage below £1550.
This is the reason for me wanting to lock in as such.
So in short you think its best to get the original mortgage back up to 23 years paying approx the lesser amount and then get the 2nd loan on a 10 year at the £643? Once that is paid revert that money onto the original mortgage?

getmore4less

If you have a hard limit of £1550  then something has to give.

Find more money  or extend your terms to get the payments down

the difference in interest between taking the £65k over a longer term(17) and the main mortgage longer(23)  is  going to be around  £600 over the first 5 years 

If the extension ups your value by enough to get to 75% it may work with a lower payment.
80% is not that bad target for 2 years that still gives access to better rates

what chance is there that NW will let you extend the term on the main part keeping that low rate AND letting you have a top up? 

What back up funds are there for contingency(projects never come in on budget) and emergencies while stretched as much as this?

Do not bank on a second round of raising funds if project goes over,  get more than you need or have a backup source that is not your property.

What can you cut to up the budget  anything like forget holidays for 5 years or get cheaper cars.

What about delay a year but pay £1,550 pm to make sure you can afford that.
You will have paid off £15k only need 80% borrowing for the top up.

Are you sure you are not over committed if you really think rates are going to go up.



  

iwearahalo

what chance is there that NW will let you extend the term on the main part keeping that low rate AND letting you have a top up? 
They have said we can keep the initial rate, I think I'll we'll push the main mortgage back to 23/4 years and take the 2nd mortgage out on a 5 year fixed of 2.99% so its aligned with our new 5 year main on 1.54%, can you see anyway of after 2 years there'll won't be a huge change in the market? I think we may lose pennies but not pounds, or I hope so! Thank you for your help.