Overpaying on mortgage just before switching deals

Eassenav

We are in the process of applying for a remortgage (our property has been valued and the loan has been approved), our current deal does not expire until the end of October. 

Due to previous financial difficulties, defaults etc we struggled to get a deal with a high street lender 2 years ago so went with a specialist mortgage provider with an interest rate of 4.17%, our new rate is 1.14%.  Our current mortgage has done what we needed it to do and our finances are on a much more even keel now and during lockdown we have even managed to save.  We did hold off overpaying on our mortgage though as there was a period when we weren't sure what would happen with our jobs and wanted to ensure we had funds put aside so we could continue to make our mortgage payments, but thankfully we came through that unscathed. 

We are now just under 3 months from switching and wondered whether we should use our savings (holding back a bit for contingency) to make an overpayment on our mortgage (it would be well within the 10% allowed in a mortgage year).  At present our mortgage is £1725 and £800 of that is interest.

Hopefully what we can save in interest will cover the majority of our legal fees for the new mortgage (we have some costs not covered by the lender).  

I am assuming that as it is our residential property there are no tax implications for having a surplus amount when the existing mortgage is paid off by the new mortgage.

Do you think our existing lender will have any issue with this?

Is there anything that I need to be aware of/haven't thought of (I am hoping that even if our new mortgage gets delayed I am holding back enough contingency).

Thank you for taking the time to read this.

fiveacre

Not sure what you mean by a surplus amount, the new mortgage would pay off the balance from the existing, unless you choose to borrow more. No tax implications.

getmore4less

All any overpayment improve your LTV enough to drop the new rate?

Eassenav

Thanks for the replies - apologies if I wasn't clear, I am borrowing slightly more than is needed to clear the mortgage (we are going to use it to refurb the bathroom).  We are borrowing 225K but currently it is about 222K outstanding on the existing mortgage so any overpayment I make now will increase the surplus amount once the existing mortgage is paid off.

Many thanks for your help.

jord411

Can you not just keep the extra money you currently have saved and instead of paying it off the mortgage just put it towards the 3K your get from the new mortgage ? 

Eassenav

We are paying very high interest (4.17%) I kept the savings now in case we needed them due to Covid but now we have the new mortgage in place (rate 1.14%) starting in October I wondered if it would be a good idea to use the savings to reduce the mortgage debt (I guess like a temporary off set mortgage).

getmore4less

You save 2-3 months  ~3%,  around 25pm for each £10k you overpay

scoey8

Eassenav said:

We are paying very high interest (4.17%) I kept the savings now in case we needed them due to Covid but now we have the new mortgage in place (rate 1.14%) starting in October I wondered if it would be a good idea to use the savings to reduce the mortgage debt (I guess like a temporary off set mortgage).

Hi may i ask has all your 'bad credit' dropped off in the past two years. I am in a similar situation that we couldn't get a mainstream lender two years ago so went on a fixed rate at 3.69%. This is due to end next month but 3 of the 4 defaults we had have now dropped off the credit file, would be interested to know if you still have any adverse and who you went with at 1.14%? Thanks

Eassenav

scoey8 said:

Eassenav said:

We are paying very high interest (4.17%) I kept the savings now in case we needed them due to Covid but now we have the new mortgage in place (rate 1.14%) starting in October I wondered if it would be a good idea to use the savings to reduce the mortgage debt (I guess like a temporary off set mortgage).

Hi may i ask has all your 'bad credit' dropped off in the past two years. I am in a similar situation that we couldn't get a mainstream lender two years ago so went on a fixed rate at 3.69%. This is due to end next month but 3 of the 4 defaults we had have now dropped off the credit file, would be interested to know if you still have any adverse and who you went with at 1.14%? Thanks

Happy to answer that My adverse defaults (2 credit cards) were the end of 2017 and all bar 2 months of 2018.  All payments up to date since January 2019.

We remortgaged with an adverse credit lender in October 2019 and that comes to an end in October 2021.  I approached Santander directly as I passed the DIP and arranged to have an meeting with one of their advisors but they said it was a straight no once I gave them my history.  I then approached a free MA back in May and explained my situation and they managed to secure a mortgage with TSB.  I read up on TSB's lending criteria and thought we were borderline as to whether they would accept us and I was very nervous up until the offer was made.

Based on what  you have said I can't see a reason why you wouldn't be able to secure a similar deal - we went for 5 years fixed as we don't intend to move and by then my credit file should be clean.

Good luck