Mortgage advice

Fiestaspaniel

Hi all,

We have approximately 5 years left on our £30,000 mortgage.  We are approaching the end of the current 2 year fixed term and will be looking to remortgage on a new term in the coming weeks.  We have previously taken out 2-3 year fixed terms over recent years and always overpaid the maximum 10% allowance during the year.  In between renewal of terms we have also tried to make overpayments.  As we are eventually coming to the end of our mortgage we are looking to pay off the mortgage as soon as possible.  As we will be looking to repay the mortgage in full within the next 5 years, I therefore think the best option would be take out some sort of variable rate or some sort of tracker mortgage.  As we have not previously had any variable/tracker rates, my understanding of these types of mortgages is that we can then overpay as much as possible without being penalised?  Please can anyone advise on this.

If we do decide to go down the variable/tracker route at renewal, do we keep the term at 5 years or do we reduce the term to say 4 years or extend the term to say 10 years.  We realise that obviously reducing the term will increase the monthly repayment/reduce interest charge and extending the term will reduce the monthly repayment/increase the interest charge.  Therefore my question is; 1) Is it more benficial to increase term (i.e. to 10 years) resulting in lower monthly repayments and enabling us to make larger overpayments or 2) Is it more benficial to reduce term (i.e. to 4 years) resulting in higher mothly repayments but make smaller overpayments?

Any advice would be greatly appreciated.

Thanks

Singlemummy_2

Could you fix for 2/3 years, make any overpayments that you can within that time without penalty and put anything else you can afford into a savings account, then after 2 years pay the savings off and see what you are left with? 

Not sure why you’d fix for more than 5 years if you plan to pay off within 5 

kingstreet

If you take an ERC-free tracker, you'll be able to overpay as much as you want.

Take the longer term and have lower contractual payments then overpay upto or in excess of the level which would have applied to the higher monthly payments over the shorter term.

Yorkie1

If you go for a longer period and lower contractual payments, on a product with an ERC, double check what the maximum overpayment limit will be, so that your O/Ps don't exceed the limit. If you plan on paying £xx as an O/P, then the risk of exceeding limits is far greater if a lower proportion of the £xx is contractual.

I'm having to manage my own O/Ps at present to avoid paying the ERC. Have 4 years left on current fix, with ERCs - I made a lump sum O/P recently, and now have had to calculate the O/Ps for the remaining term, so that I don't finish too soon and have to pay the ERC!

Archerychick

Might also be worth looking at what First Direct have to offer as they allow unlimited overpayments within a fix. Once you get close to paying it they’ll recalculate your monthly payments so don’t end up paying it in full early  

Jemma01

I've got a tracker for 20 years to refuce the monthly obligations just in case I lose my job again, but I intend to pay it off in 2 years. The tracker I took is for 2 years. I'd take another tracker if I couldn't make fully pay in two years.

Fiestaspaniel

Thank you all for the advice, so think we'll go down the route of increasing term (years) and keeping the contractual repayments lower and therefore giving us the option to make larger overpayments and ensure we do not get penalised throught ERC's.  This is what we thought would have been the better option, glad to see we're on the same wave length.

As suggested we'll look into First Direct with a fix and no overpayment limit and/or look for a tracker with no EPCs.

Thanks

BikingBud

Fiestaspaniel said:

Thank you all for the advice, so think we'll go down the route of increasing term (years) and keeping the contractual repayments lower and therefore giving us the option to make larger overpayments and ensure we do not get penalised throught ERC's.  This is what we thought would have been the better option, glad to see we're on the same wave length.

As suggested we'll look into First Direct with a fix and no overpayment limit and/or look for a tracker with no EPCs.

Thanks

ERCs whilst a cost are not always the worst thing that can happen. 

Consider what interest will be saved as an offset against the ERC you might find this brings it back to a much more palatable position eg a headline ERC of 5% might give a charge of £4400 but interest saved by reducing the term might bring this back to £2500 or less and if you have already saved lots of interest by overpaying you are still likely to be up overall in comparison to where you started.