What to do?

Rockydennis_2

First post - sorry if it is in the wrong place. Great friendly site with lots of people giving and recieving what looks like good advice. Hope someone can help me.

Current financial situation :

Repayment mortgage = 112,500. 683 pcm. 4.64%.
Loan = 13,800. 390 pcm. 6.1%

No credit card debt, overdrafts or HP's.

Cash Isa = 4400. 6%

Monthly income(Wife and I) = approx 2700 after tax

Have to remortgage in October, so plan is to keep paying into Isa whatever is left at end of month and when remortgaging, use Isa money and borrow a bit more to pay off loan. Worked out with Isa money and future mortgage and loan repayments should only have to borrow about 6,000. Bought house 1 year ago for 220,000.

Is this a good plan? If not, any advice appreciated.

Cheers

Rockyd

bank_of_slate

Hi Rocky and welcome!
I'm not sure of the answer myself but I'm sure others can help.
Just wanted to say hi! :j
...Linda xx

andan

Can't offer any advice, sorry, but wanted to say hi and best of luck with your situation. Hopefully someone will be along soon who knows about this kind of stuff.

poorandindenial

Hi Rocky

I guess it depends on what remortgage deals you can get and whether your loan has any penalties for paying off early.

My gut feeling if your loan is flexible would be to throw the ISA amount at it now to reduce the balance and then overpay as and when you are able to. There isn't a huge difference between the loan and ISA rates but you are still paying more for what you have borrowd than you are earning on your isa.

Then you can still absorb the loan into the mortgage when you remortgage if you get a better mortgage rate than you have on your loan.

What are the terms of your loan?? They should be on the loan agreement.

Rockydennis_2

Thanks for the welcome!

Loan is a fixed-sum loan. I am guessing this means I don't have the ability to make ad-hoc payments. There is no mention in loan agreement to ad-hoc payments.

Desperate to get rid of loan as the 390 pcm makes things a little tight after direct debits for utilities etc have gone out.

poorandindenial

Does the agreement state that there is a penalty for paying early (often a couple of months interest)?? If not it could be worth a ring to see what they say.

Who is the loan with (I only ask because I have one with Egg that is completely flexible (I can overpay, reschedule and lump sum to my heart's content and the interest adjusts in line with it) and another with Lloyds that is less flexible (just off to dig out the agreement to see how it phrases it)

poorandindenial

The other thing to check is how much interest you will end up paying overall if you consolidate into your mortgage - I assume it will be for the standard 25 years?? try the snowball calculator on https://www.whatsthecost.co.uk and see how mich interest you will pay on the loan and mortgage seperately and then how much you will pay on them combined to see what is most viable.

On my Llloyds loan (in the repayments section) it states that I can overpay at any time (which will reduce the life of the loan), vary my repayment amounts twice a year and pay it off at any time. If I pay it off early I incur 58 days interest so it is in ly interst to get the balance down before I attempt to pay off in full. Definitley worth a check with your loan provider.

You may find your loan company will allow you to pay off the £4400 and then reduce the monthly payments so that the life of the loan is the same which will reduce your monthly outgoings and overall interest paid (and increase your chances of making overpayments to further improve.

Rockydennis_2

Loan company is Sainsburys. Just called them and nice lady has told me that I can make ad-hoc payments but it won't save me any money and won't reduce term or monthly payment. I will however recieve interest rebate if I pay the whole balance early - which I can't afford to do yet.

By October will owe 11,320.44 on loan. If I, for example, have 5000 in Isa then will only need to add 6320.44 to mortgage. Probably would pay more interest over the 22 years when absorbed into the mortgage but plan to make overpayments on mortgage when monthly outgoings reduced by getting rid of loan. Am I rambling?

poorandindenial

Rockydennis wrote: »

Loan company is Sainsburys. Just called them and nice lady has told me that I can make ad-hoc payments but it won't save me any money and won't reduce term or monthly payment. I will however recieve interest rebate if I pay the whole balance early - which I can't afford to do yet.

That doesn't make any sense, an overpayment has to either reduce the length or the repayments or they would be accepting money for free and not putting it towards the debt, how odd. Am sure there will be a whizz on here soon that can explain it.

Rockydennis wrote: »

Am I rambling?

Not as much as me today

Rockydennis_2

The lady at Sainsburys was definate in what she said. Your logic maes sense though. What do they do with the money if I make ad-hoc payments if it isn't reducing debt or term? Think I will have to call them back and ask.