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Remortgage options - WWYD?
Technosaurus
Posts: 57 Forumite
Hi everyone. Remortgaging early next year and just seeking a bit of advice in case my simple mind has 'missed' something.
Will be coming off a 5 year fix at low interest (1.1%), outstanding balance circa £63k, 10 years to run (both of us aged 38)
Historically pursued a mortgage-free-wannabe strategy, overpaid as much as possible + also had a five-figure inheritance which we used at last remortgage time, mortgage as a percentage of outgoings is probably quite low, appreciate the rest of this thread might be a 'first world problem'
Also had some life changes - children, parents dying or getting ill, job changes - which mean that we now value 'family time' higher than ever before. Holidays, days out etc. We put a decent amount aside for such things every month in a high interest easy access account. These could technically class as savings if an emergency struck but obviously it's mentally earmarked for fun.
Joint income just over £70k, neither of us are super-high earners but we do have a bit of wriggle room. Mortgage and bills can be done on just one salary if one of us lost our job.
Savings currently not as high as we'd like as we also had to unexpectedly buy a car earlier this year - due to rising 2nd hand car costs we felt it was a better deal to buy outright than find a new lease, spent slightly more than imagined so savings took a hammering. Currently rebuilding the savings but will take a couple of years to rebuild that pot at current maths.
Due to the way things are, depending on work bonuses, it's looking likely we'll be able to continue overpaying £2-3k per annum, but that's never fully guaranteed.
Ignoring going interest free, our options are:
1. Remortgage like normal, to whatever cheapest deal is on a 10 year term - monthly cost likely to go up £50 ish, likely to have to take this from the holiday pot
2. Add 5 years to the term - monthly cost will decrease c£140 per month. All will go into rebuilding savings.
3. Add 10 years to the term - monthly cost will decrease c£220 per month. All will go into rebuilding savings much quicker. Probably our 'last chance' to get a 20 year mortgage term due to our age.
Using the overpayment calculator, overpaying £2500 per annum means whatever we choose, the mortgage will be cleared in 10-11 years anyway (appreciate ERC's come into play further down the line)
Am I being a bit simplistic in thinking going for the longest term possible to reduce monthly costs and rebuild savings, while hoping to continue overpaying to reduce the term, is the best option? Have I missed something in my thinking?
Thank you for your time, sorry for long message
Will be coming off a 5 year fix at low interest (1.1%), outstanding balance circa £63k, 10 years to run (both of us aged 38)
Historically pursued a mortgage-free-wannabe strategy, overpaid as much as possible + also had a five-figure inheritance which we used at last remortgage time, mortgage as a percentage of outgoings is probably quite low, appreciate the rest of this thread might be a 'first world problem'
Also had some life changes - children, parents dying or getting ill, job changes - which mean that we now value 'family time' higher than ever before. Holidays, days out etc. We put a decent amount aside for such things every month in a high interest easy access account. These could technically class as savings if an emergency struck but obviously it's mentally earmarked for fun.
Joint income just over £70k, neither of us are super-high earners but we do have a bit of wriggle room. Mortgage and bills can be done on just one salary if one of us lost our job.
Savings currently not as high as we'd like as we also had to unexpectedly buy a car earlier this year - due to rising 2nd hand car costs we felt it was a better deal to buy outright than find a new lease, spent slightly more than imagined so savings took a hammering. Currently rebuilding the savings but will take a couple of years to rebuild that pot at current maths.
Due to the way things are, depending on work bonuses, it's looking likely we'll be able to continue overpaying £2-3k per annum, but that's never fully guaranteed.
Ignoring going interest free, our options are:
1. Remortgage like normal, to whatever cheapest deal is on a 10 year term - monthly cost likely to go up £50 ish, likely to have to take this from the holiday pot
2. Add 5 years to the term - monthly cost will decrease c£140 per month. All will go into rebuilding savings.
3. Add 10 years to the term - monthly cost will decrease c£220 per month. All will go into rebuilding savings much quicker. Probably our 'last chance' to get a 20 year mortgage term due to our age.
Using the overpayment calculator, overpaying £2500 per annum means whatever we choose, the mortgage will be cleared in 10-11 years anyway (appreciate ERC's come into play further down the line)
Am I being a bit simplistic in thinking going for the longest term possible to reduce monthly costs and rebuild savings, while hoping to continue overpaying to reduce the term, is the best option? Have I missed something in my thinking?
Thank you for your time, sorry for long message
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Comments
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No 'right' answer here, but personally I would keep things as they are: remortgage for 10 years and keep overpaying as much as you can manage while rebuilding your savings. You'll really appreciate being mortgage free in your mid-40s, and it doesn't sound like you're financially unable to do the holidays, days out etc that you want in the meantime.1
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Personally I'd stick with the existing term. While ensuring that you build a suitable savings buffer. Plenty of time yet for long term saving plans.1
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Thanks both for your replies, much appreciated.
I think I'm (perhaps unreasonably) panicking that we don't technically have 3-6 months outgoings in the 'savings pot' at the moment, whereas for many years we've always had that buffer - the unbudgeted car purchase just left me feeling a bit financially exposed at the moment - and yes I suppose the counter-argument is that in an emergency the holidays just stop and we have the option of selling the car.
Building the savings back up obviously takes time but I wondered if doing it via significantly reducing mortgage costs could be a 'quick win' whilst still largely staying on track with potential overpayments from any bonuses to keep chipping the actual mortgage away. Can understand people might say put the bonus in savings but the bonuses aren't guaranteed and only come once per year, whereas having a lower mortgage means we can build savings back up monthly...
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At this point in time, and given the information you have provided, it does like like option 3 gives you a good balance/flexibility of each of your targets (more holiday and fun pots, more emergency funds, more savings, and the option of overpayments).
I personally would build up your emergency fund first though before the others, even pausing the overpayments for a while1 -
Lengthening the mortgage term ultimately costs you more money. Remaining financially disciplined in the short term will reap rewards in the longer term. Taking the 10 year option as an example. Your monthly "saving" is £220. However what's the additional cost by paying the mortgage over another 120 months. Use a calculator and do the maths. You may be shocked by the result. With mortgage rates unlikely to drop significantly from current levels.1
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Hi Hoenir,
The 'plan' would be to continue overpaying so whether the official term is 10/15/20 years, the MSE calculator says we should be mortgage free in 11 years anyway (and to be honest by the calculator predictions by year, we should have enough in savings to be able to clear in year 9).
The official term would be an academic figure really, I would have no intention of actually paying it for 20 years, it's just if I take a 20 year mortgage it frees up a lot more breathing space month-to-month - as Money Monkey says it seems like it gives the most flexibility, as long as we are still prudent enough to overpay circa £2-3k per annum.
I'm just wondering if I've missed something or is this a legitimate way of having my cake and eating it?
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And to add, if we remortgaged "normally" for 10 years we'd still hopefully be able to overpay but we'd just have less month-to-month and less flexibility to build savings back up, it would be a more gradual process.
And if anyone asks why the rush, our children are at the 'golden age' for enjoying family time with us, before they become surly teenagers, hence the short term nature of my decision making to want cash in the bank now!0 -
You will need to factor in re-mortgaging fees each time your remortgage over the longer term. You can always re-evaluate your progress to your targets after the fixed term ends (assuming you go for fixed).
In simple terms your borrowing money for a better lifestyle over the next 10 years and have a prudent plan to pay it back.
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Thanks Money_Monkey.
Yes will definitely be fixing albeit probably only for 3 years this time due to the interest rate, assume it will find its steady state in the next couple of years (but know full well we'll never see 1.1% again!). The idea being within that 3 years we should be able to build the savings back up to 'pre-car' levels and, as you say, see how we are getting on with repayments and other expenditure.
And yes good advice on the fees - I'm a bit of a tragic nerd on this stuff so the numbers quoted above were for the cheapest 'fee free' mortgages I could find. I could do it slightly cheaper on the headline monthly payment but if it's a £995 fee over 36 months (when we'll next be remortgaging) then it would need to be £28pcm-or-more cheaper to be cost effective which none of the fee-paying ones are. I know the maths might be dodgy there so please tell me if that's a rubbish way of assessing value!0
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