Advice needed please

rozzy_2

Around a year ago I took out a 100% mortgage (90% mortgage and 10% unsecured loan) over a 5 year fixed term.

When my fixed term comes to an end is it possible to pay off the unsecured loan and then just remortgage the outstanding balance. Would this be the best option? How would I go about doing this?

How do I go about making over payments on the mortgage? can I just increase the direct debit?

I apologize if these are deemed as stupid questions, this is my first property with no prior experience of mortgages. Many thanks for your help.

mr_mortgage

A direct debit is a 'pull' transaction, insofar that you have mandated that the bank can take money from your account - so it is them that would need to change the DD so you can overpay, and in order to do that you need to get in touch with them to do it (assuming you are allowed to make overpayments).

When it comes to remortgaging in the future, you could just seek 90% of the value as a remortgage amount and front up the remainder with your own cash. It's very simple. Basically, you give the funds to the solicitor who is dealing with the mortgage - they request funds from the new lender, and with that amount + your cash they pay off the old lender.

Or, if you are allowed make overpayments you could just overpay with your cash to the old lender, then remortgage to a new one for the lower amount. Either way, it's not complicated.

If you have the money now, or are planning on accumulating it over the next few years and can make overpayments you may find it's best to do this incrementally rather than hold on to the money until the end of the term as paying off in chunks will lower the amount of interest charged, saving you a few more quid. If you know you are going to receive the money in a lump sum in a few years, then this of course isn't an option.

Mr M.

rozzy_2

Thanks for the very quick reply.. I thought it would be a simple process but wanted to get my head around it sooner rather than later.

The reason why I was going to save up as a lump sum is because my ISA AER rate is higher than my mortgage APR. Would i be better at just making higher overpayments instead?

luckyfool

I would stick to your original plan and repay it when you remortgage.

Overpaying an unsecured loan can be an untidy business and in many cases it is not possible. i.e. You have to repay the whole lot or nothing at all.

Gorgeous_George

What interest rate are you paying? If it's less than 6% you may be better off saving into a cash-ISA (£300 per month per taxpayer).

Over 4 years, you could save £14,400 + interest (per taxpayer), tax-free and at a rate higher than your mortgage.

GG

rozzy_2

Gorgeous_George wrote: »

What interest rate are you paying? If it's less than 6% you may be better off saving into a cash-ISA (£300 per month per taxpayer).

Over 4 years, you could save £14,400 + interest (per taxpayer), tax-free and at a rate higher than your mortgage.

GG

5.8 I am paying. thats what I am currently doing but I wanted to start making overpayments on the mortgage aswell. even if the overpayments are relatively small, it would be nice to see the amount being reduced.

Gorgeous_George

You're probably as well off with the overpayment route as this will be less hassle than ISAs. Speak to your lender and ask whether it is better to overpay each month or in lump sums.

GG

money_maker_3

Can I just say that you don not have a 100% mortgage if the 10% is on an unsecured loan. So if your income is sufficient to allow you to keep the loan and the mortgage, you are only going to be looking for a re-mortgage of 90%LTV anyway even if you do not make any overpayments.

luckyfool

money_maker wrote: »

Can I just say that you don not have a 100% mortgage if the 10% is on an unsecured loan. So if your income is sufficient to allow you to keep the loan and the mortgage, you are only going to be looking for a re-mortgage of 90%LTV anyway even if you do not make any overpayments.

This doesn't take into account the fact that most of these types of mortgage & unsecured loan package deals will include a clause which hikes the unsecured loan interest rate dramatically if the mortgage is repaid or moved away. e.g. In the order of 5% plus over the banks SVR, so potentially up to 12-15%.

rozzy_2

money_maker wrote: »

Can I just say that you don not have a 100% mortgage if the 10% is on an unsecured loan. So if your income is sufficient to allow you to keep the loan and the mortgage, you are only going to be looking for a re-mortgage of 90%LTV anyway even if you do not make any overpayments.

Yes I know hence why I split it out, I was just stating that I borrowed the full amount required to buy the property. as Lucky stated the unsecured loan part will change to a variable rate which is around 12%ish I think when the 5 year term expires.

The only options I see I have is to consolidate the two (if house prices are falling I may struggle to remortgage for that amount??) or pay off the unsecured loan when remortgaging.

luckyfool

rozzy wrote: »

Yes I know hence why I split it out, I was just stating that I borrowed the full amount required to buy the property. as Lucky stated the unsecured loan part will change to a variable rate which is around 12%ish I think when the 5 year term expires.

The only options I see I have is to consolidate the two (if house prices are falling I may struggle to remortgage for that amount??) or pay off the unsecured loan when remortgaging.

One quick point, not to be pedantic. Normally the unsecured loan rate will only revert to this much higher rate above the SVR if and when you move the mortgage part onto a new product or a new lender, i.e. after the fixed period the rate will stay the same as your main mortgage, basically the SVR, unless and until you do something else.