Next steps with Mortgage £19k remaining, over pay? Bank loan?

Maxsave18

Hi, this is my first post so hope I give we the necessary information. My mortgage deal with Santander comes to an end on June 2nd, if I do nothing they will transfer me to their Follow on rate at 3.35%, this would allow me to over pay as much as I want. I could move to a 2 year tracker rate at 1.49%, however this would incur a fee of £999. This does not feel a cost effective option.  Alternatively, I could pay a fee of £75 and go through a new application with Santander for a fixed deal, However I could only over pay 10% each year.
I have also wondered if taking out a bank loan and paying the full mortgage off is a cost effective option? I think MBNA had a 2.8% rate up to 5 years.  There is a chancer I will sell the house within that time, so not sure if I could pay off a loan early or incur pentalties.
I am currently paying £400 per month.  I have two parts to mortgage, 
- £5600 with 4 years 9 months remaining 
- £13285 with 3 years 11 months remaining
I have the option of paying off another £3000 as a lump sum now.  Is this wise? I could afford monthly payments to go up to £550.  I am just not sure how to proceed. Any advice please? 
Many thanks 
Max

[Deleted User]

An unsecured loan of 20k will be a very big ask - especially at a decent rate and for the purpose you need it.

You're going to need to run some scenarios - especially if you're thinking of moving. When might that be? Is your mortgage portable? 

Maxsave18

I would possibly move in 2 to 3 years but if I did, I would downsize so would not anticipate needing a mortgage.

MovingForwards

You may not get a bank loan to clear a mortgage.
How much do you expect to pay extra each year? Have you considered going on to their variable rate and paying it down that way, especially as it's only for a couple of years.

LadyGnome

Do you have several months living expenses / emergency fund already saved up.  If the answer is no - then don't pay off the £3k.  Have you crunched the numbers to work out which option makes most sense?  If you are able to overpay significantly more than 10% per year then the reduction in interest from the capital dropping faster may offset the higher interest rate.  If realistically you are unlikely to OP much more than 10% then then (almost) free fix would seem like a better option.  
Banks are reluctant to agree to loans for the purpose of mortgage clearance.  

Maxsave18

@LadyGnome, yes I have emergency funds in premium bonds. I have tried crunching numbers and I think my best bet is sticking with the follow on rate which will give me flexibility to pay off more.  I think I will be able to pay off more than 10 percent.  Ideally, I want to pay it all off in three years time

Maxsave18

@MovingForwards, thanks for your response.  I am looking at regular payments of £550 per month and possibly some over payments on top,  I had not realised that I would not get a bank loan to clear a mortgage. Why is that?

MovingForwards

@Maxsave18 it's excluded as part of a lot of companies criteria. I thought about doing it myself to buy a property as mostly cash with a £5 - £10k loan but read several bank / loan companies criteria and what they wouldn't lend money for eg property purchase, which is effectively what you're trying to do eg pay the mortgage off.

If you're looking to pay it off in 3 years, by way of normal contractual payments and overpayments either do a fix but save the extra money and then pay it off, or stay with the variable rate. 

Fix for stability, but restricted overpayments and you can save the money in a regular saver for a bit of interest.

Don't fix and pay off as much as you can each month to clear it.

Are you sure you have to speak with someone and can't just pick a fix online?

MovingForwards

Even MBNA exclude it:
"Loans will not be provided for speculative purchases (gambling, investments and share purchases), any illegal purposes, business related purposes, purchase/lease of land or property, either full or part purchase (including deposit), timeshares/holiday clubs"

edinburgher

Not sure about income/affordability etc. But have you considered getting 0% credit cards and using them to pay off the mortgage (use cards for spending, keep your earnings to overpay the mortgage)? It's not for everyone, but £19k perfectly attainable on credit cards and lower risk to you than most as your home is nearly paid off.

jimjames

Maxsave18 said:

@MovingForwards, thanks for your response.  I am looking at regular payments of £550 per month and possibly some over payments on top,  I had not realised that I would not get a bank loan to clear a mortgage. Why is that?

I'm curious why you would want a bank loan to clear a mortgage? It's just shifting debt from one sort to another which seems pointless. Do Santander not have any other deals available for switching? Nationwide for example have different options with and without fees so you can choose which works best for you.
Is another alternative to switch completely? I know the amount is low so it might not be viable