Lump sum payments - do they help get a better deal when re-arranging/re-mortgaging

shankly_2

Hi All
I'm currently on a fixed rate deal for 5 years (5.84%) with Halifax which comes to an end in around 18 months. The total borrowed originally was 99k, and there's probably around 92k outstanding. I have some savings which I want to make more use of and am thinking of making a lump sum payment off my mortgage (say around 5k, which I understand could take around 13k of the total amount paid, if I keep paying the same amount every month, asuming that the interest rate stays at a similar level, which I know is a big unknown in itself).
My queries are whether (a) this sounds like a good idea and, probably more importantly (b) whether, in the current economic climate, this will increase the chance of getting a better deal (ideally another fixed rate) when my current 5 year fixed comes to an end next year (obviously I appreciate this will depend on other factors as well, like credit record etc.).
Any views on this would be much appreciated.
Cheers
Dan

wymondham

I'm pretty sure it will reduce your LTV needed on your next deal, so should indeed help get a better rate etc....?? In any case the rate won't be as good as the current one due to recent events...

dimbo61

hi shankly are you making full use of your ISA allowance at the moment
as you can get 6.5% from barclay,s and 6.5% fixed ( for one year) from lloydstsb. as your mortgage rate is 5.84% putting as much as you can into isa,s make better sence than clearing some of the mortgage.
check the T & C of your mortgage as it may well restrict you to paying no more than 10% extra off per year.
if you overpay by 10% a month ( if allowed ) then when this deal ends and
your new and more expensive deal starts you will be used to the extra cost.
GOOD LUCK

shankly_2

Many thanks for the replies.

As it is a new tax year I will probably be making use of my cash ISA allowance but this payment would probably be on top of that (unforeseen expenses allowing). A stocks and shares ISA would be another option but being a fairly cautious investor I am more keen on something with more certainty of a return/saving. Having said that who knows what rates will be available in 18 months time (or for the next 20 years) - I am guessing I will be paying more then, it is just case of whether I can reduce the increase.

MarkyMarkD

Paying off £5k won't take £13k off the total amount paid over the remaining deal term. It will take off a little bit more than £5k.

Do you not have ERCs on your mortgage which prevent you overpaying like this?

shankly_2

Thats what Halifax told me when I spoke to them, but obviously I'll checking before I do anything and I haven't worked it out myself. Apparently you can pay up to 10% off the overall total each year in a lump sum. Just to clarify, I meant that it would actually only save me around 8k over the whole term, as obviously I would have already paid the 5k upfront now. This is also based on me paying the same amount every month as I do now over a shorter period, rather than a reduced amount over the same terms (which is obviously also dependent on what deal I get when my 5 year fixed runs out). Hope this makes sense!

MarkyMarkD

I don't doubt that you would save the £8k over the remainder of the mortgage's life if you were going to stay with Halifax until maturity. But you aren't, so it's a fairly academic figure. You will only actually achieve it if you reduce the term, when you remortgage, to the right term so it matures when it would do if you stayed with Halifax after paying the lump-sum, if that makes sense.

As long as you have the flexibility on the ERCs it is not a bad idea to overpay.

shankly_2

Ok - thanks for explaining, I see what you mean.

I'm going to have a bit more of think on this one. Still doesn't seem like a bad idea but not quite as simple as I'd originally hoped.

Cheers