Helping Daughter with Mortgage Overpayment

Hal17

I guess this is a no-brainer, but I am thinking it might be prudent to help my daughter with an over payment on her mortgage. She currently has two more years on her low rate fixed Halifax loan at which point we can only speculate as to what the new interest rate will be.

She is allowed to make an overpayment of up to 10% each year, so I have until the end of December to make the decision. I have already helped her with the deposit so she is not expecting any additional financial help at this time and is not required at the moment.

But I was thinking if interest rates will be 6%+ when she has to agree a new rate, then I should not miss this annual opportunity to make a overpayment up to 10% without any early payment charge. I would appreciate any thoughts as to if my logic makes sense.

dander

At the point when her low rate expires you can make an unlimited "overpayment" and allow her to remortgage at a lower sum. There's no real need to do it now. 

Hal17

Hello dander, that is an excellent reply, thank you so much. That would make more sense for me to do that. Should I check with the Halifax or is that a standard option when one re-mortgages? 

BikingBud

Or you could pay a lump sum now and save interest between now and the end of the fixed rate period.

The question is would you get more interest from saving eg in a fixed term high interest account than you would save by paying the lump sum off the mortgage? Some times yes but.....

You appear to have 2 opportunities to pay off 10%, before 31 Dec 22 and before 31 Dec 23, this second option might be to pay off on 1 Jan 23. You will also be able to provide an unlimited lump sum once the fixed rate period expires. 

You need to compare the rates and then decide once you know all the potential costs and benefits and your risk position.

Why not try a calculator for your daughter's circumstances, you can play with the numbers and see what works best for you.

http://excelworks.co.uk/default.aspx?page=30100&alias=Download%20Excel%20Mortgage%20Calculator%20Spreadsheet

You can usually confirm the ERC terms on you mortgage statements, mortgage anniversary or calendar year.

edited to add please also be aware of any potential tax liability arising from savings.

Coffeekup

dander said:

At the point when her low rate expires you can make an unlimited "overpayment" and allow her to remortgage at a lower sum. There's no real need to do it now. 

True but paying a lump sum off now, will make the following fixed rate payments have less interest on them and more coming £££off the balance.

Hal17

Thank you BikingBud that was very helpful. I appreciate the comment about tax liability.

I know we would earn more interest on the money if I kept it and paid a lump sum to her when she has to re-mortgage.

I spoke with a lady at the Halifax and she indicated that if the mortgage was a "Fixed Product" then she could not pay off a lump sum without a penalty. I don't know what a Fixed Product means and she did not offer an explanation? I told her it was a fixed rate and when it ended etc and she understood all that. I guess I will need to ask my daughter to show me her Halifax offer to see what it says. Thanks again.

dander

Coffeekup said:

dander said:

At the point when her low rate expires you can make an unlimited "overpayment" and allow her to remortgage at a lower sum. There's no real need to do it now. 

True but paying a lump sum off now, will make the following fixed rate payments have less interest on them and more coming £££off the balance.

Yes, but if it's on a low fix, the interest gain will probably be more by keeping the money in savings and paying a lump sum when you remortgage. If you overpaid 10k into a mortgage at 2% interest, you'd only save £200 over the course of a year. To my mind it's not a benefit worth making rush decisions over. 
OP: If she remortgages at the end of the fix, then she can just remortgage for any amount, and use your money in part to pay off the old mortgage. Hope that makes sense!

Hal17

Thanks Dander that makes perfect sense. I will do exactly that! I will keep the cash in the best savings rates I can find and then give her the lump sum in 22 months time before she remortgages. Thanks for the original input as I had not even considered this option. 

BikingBud

dander said:

Coffeekup said:

dander said:

At the point when her low rate expires you can make an unlimited "overpayment" and allow her to remortgage at a lower sum. There's no real need to do it now. 

True but paying a lump sum off now, will make the following fixed rate payments have less interest on them and more coming £££off the balance.

Yes, but if it's on a low fix, the interest gain will probably be more by keeping the money in savings and paying a lump sum when you remortgage. If you overpaid 10k into a mortgage at 2% interest, you'd only save £200 over the course of a year. To my mind it's not a benefit worth making rush decisions over. 
OP: If she remortgages at the end of the fix, then she can just remortgage for any amount, and use your money in part to pay off the old mortgage. Hope that makes sense!

@Hal17 Whilst there is no need to rush, (although if you miss the repayment date you miss that opportunity) there is a need to fully understand your own situation rather than generic advice on the interweb. Hence, I recommended the tool rather than an action. You can understand the products and your constraints and then explore the options with your daughter and come up with a plan that works for you both. She may be able to scrape a small amount together and rounding up to the nearest £50 or £100 could make a difference for now.

It may well be that the best option is to save and pay the lump sum later , or not, but if you investigate and ensure you fully understand your options, you own your decision.

Give Halifax a kick to provide accurate terms and conditions if you cannot find them.

Hal17

Thanks BikingBud, appreciate that feedback and agree with your inputs. After all the very kinds replies to my original post, I do have a much clearer understanding of the options. I am going to pursue the Halifax T & C's just so I am clear on their interpretation. With my daughter's current low fixed rate, I know there is no immediate action required this current year. So have time to work out a plan of action with her. Thanks again for everyone's replies.