Sorting out post-divorce financial mess! Pls help.

Ms_Brush

Can I have some advice please?

My finances were shot to bits as a result of getting divorced. In order to keep my house, I had to re-mortgage last year to raise an extra £44,000, which had to be used mainly to pay off the ex and pay the solicitors / barristers bills. From that, there is around £10,000 left – which is currently split £3000 in an ISA (6.3%) and the rest in my deposit account (around 3%). Anyway, house worth around £210,000, total mortgage is now £156,000 and fixed at 5.79% - but is interest only (tactical, because I am in a temporary job but earning reasonable money, but could not afford to go repayment at that time.) I think the redemption penalty is around £3k, and this expires in 2 years time. However I can overpay by up to 20% of the monthly repayment each month without penalty.

My legal fees are still stacking up – likely to be a further £1500 before its all totally finalised, which could be a few months still. This will have to come out of the remaining funds.

I want to change the mortgage again, because my circumstances forced me into the position of taking a mortgage that was the best on offer at the time; but not what I really wanted. I am on a re-start (2 years interest only, then 25 years repayment) – and what I wanted was repayment with full flexibility, or an off-set. I am not yet in the position to do anything about this – still in temporary employment, the income multiples are now iffy because of stricter lending criteria and ex still has a charge on the property (despite court order - one of many reasons for the high solicitors bills!) but very uncomfortable with owing so much money and being unable to change to a more suitable deal. On the upside - my credit file is clean (apart from one late payment in January cos the bank messed up a DD...!!)

I also have to pay for 2 Open University courses within the next 18 months (£1100 and £2800) – which are necessary to finish my Master’s degree and increase my future earning potential. I could either pay these out of the remaining funds as well, or pay for them monthly (@ 8% via the student budget account). Paying all commitments out of current funds will leave me with approximately £4500 in ‘savings’. I also want to ensure I have some available cash for emergencies – especially until I am back in a permanent job.

On the assumption that I should just use the money already borrowed (the £10,000) to pay my commitments as and when they become due - am I better off putting my spare salary into savings or overpaying the mortgage?

CLAPTON

I would save rather than pay into the mortgage.

Pay all debts (OU, legal etc.) as they arise out of your current saving and avoid interest charges.

Once all the debts are paid then use your ability to save to ensure you have a decent emergency / reserve fund, expecially as you are in temporary employment... at least 3 months living expenses.
Once the emergency fund is satisfactory then think about overpaying on the mortgage.

I see no point is worrying about the mortgage at the moment.. the interest rate is reasonable, you can in any event overpay (which is equivalent to being repayment anyway, no point is throwing 3k away and you may be able to get a better deal.)

Hope everything works out for you.

UK007BullDog

Thats a difficult one.

I would use the money to pay the bills of solicitor and for the University as their rates are higher than the mortgage.

Once your pay has settled and increased you just overpay on your current mortgage. Then in 2 years time when the deal comes to an end you remortgage. Why force a remortgage now which will cost you high fees and early repayment fees? Makes no sense. Plus if your employment is iffy the lender might not play along. Dont waste your time on this. For a fee you can change your Interest only mortgage to a repayment mortgage. Or you just overpay what you can afford now every month. Check your T&C's what the rules are in your case to overpaying.

Offset is only good for someone with substancial savings. You do not have them as you need them to pay for things. Unless you start saving in earnest dont bother with an offset at this time. maybe in 2 years once you have sorted out your life.