MFW newbie - a few questions

MushyPeas

Morning inspirational people. I'm a MFW newbie and wondered if you guys could help with some questions? I've had a look around the threads but am still not 100% of what I'm doing so thought I'd run it past experts

Situation:

Mortgage of £93,147.52 (pays both bits type of mortgage )
Fixed rate until 30th November 2008
Interest rate 4.59%
Monthly repayment of £526.78

I just phoned up to ask about overpayments, after looking at all the inspirational threads on here. I asked the following questions:

Can I overpay without charges:
Before 30th Nov I can overpay £9082.56 with no charge

How to overpay:
Debit card over the phone or cheque in the post, no online payment available

Can the term be reduced?
No, it only reduces my monthy payments (from £526.78 to £470.77 - I'd prefer for the term to be reduced)
However, I can ask for the term to be reduced by I need to pay a fee of £25


So my questions are:
- should I pay £9082.56 in one lump sump and ask for my term to be reduced and pay the fee (I could try and save over the next few months to do this)?
OR
- pay £9082.56 in bits so it's not so scary paying all that money off in one go and it starts happening now?
- or keep £9082.56 in a high interest account?

And I guess I need to start looking around for a new mortgage as my fixed rate is coming to an end in...what do you think...say around October time?

Thanks in advance for any advice :T

Pea x

zebedy

Hi,

I'm no expert and have only recently got into this overpaying lark but my suggestion is that seeing as you have to pay a fee to chagne the term I'd save up as much as possible and overpay in one go so you just pay the fee once. Maybe use an ISA to do the saving so it's safe from the taxman and make sure you use the MSE article to get the best interest ISA (also look inot using a cachback site )

But first - I'd check again with your mortgage company that you really do have to pay a fee to make an overpayment that is a direct capital repayment and you do not want to alter your usual monthly payments. As most motgage companies let you do this without a fee.

I'd start looking for your new remortgage deal well in advance. As it often takesa quite a while to go through. Also when you get the quotes they remain fixed so if you start looking and getting quotes around 3 months in advance you may get a better deal than if you wait longer as there may not be such good deals later on the way things are going.

As I say I'm no expert, and I'm sure others will also have some suggestions.

This overpaying lark gets really addictive!

MushyPeas

Thanks zebedy, you're a star for replying

It just helps being able to chew this over with other people! When I spoke on the phone to the mortgage company they said I'd need a form to do a lump payment, so I've asked for one to be sent to me.

I think you're right, I probably should go with the lump sum and do it that way, even if the fee is £25 I think (figures wise) it adds up to a better deal in the long run.

Blimey I didn't realise 3 months in advance was worth while with mortgages. I'll make a note to look into that sooner than later.

You're right, I'm hoping to get VERY addicted. Suddenly the full amount I owe, all by myself, seems a bit scary!!!

Welshlassie

Being as your fixed rate is coming to the end this year and you have a good rate, IMO I'd save up as much of an OP as possible in a High Interest account and then lump it off at the end of the fixed rate before moving onto your new deal (ensuring that your new deal has the flexibility you need to OP when you want to, without penalty and will reduce the term).

Keep your eye out for a new mortgage over the next couple of months, if you get a flexible deal you can always borrow what you owe now and then if you save (for example) £5k lump this off and pay off the additional monies that you get from the mortgage company straight away. (hope that makes sense, if not I'll try again).

If you are able to lump off the full OP of 9082.56 you will cut more than 3 and half years from your term, remember every little helps, so start saving and good luck.

MushyPeas

Welshlassie wrote: »

Keep your eye out for a new mortgage over the next couple of months, if you get a flexible deal you can always borrow what you owe now and then if you save (for example) £5k lump this off and pay off the additional monies that you get from the mortgage company straight away. (hope that makes sense, if not I'll try again).

Thanks Welshlassie, that really helps

Um...you know the bit you said about having to try again

So is it that I should save more than the £9K if poss and then borrow less for new mortgage? :cool:

Ooh I like the idea of having a shorter mortgage term!

Welshlassie

Ok I'll try again.
You currently owe £93k. You get a new mortgage deal to start the beginning of Dec 08 for £93k. Say you manage to save £5k, which you decide to lump off at the end of your current deal, this leaves you with £88k owing, but you have a new deal for £93k. Because you have taken out a flexible deal with no penalties for Over paying you can pay back the extra £5k they have given you straight away. This puts you in the position of having money you can borrow back (should the need arise). Hope that explains things better. You will also be overpaying with some of your standard monthly payment because you have already paid off £5k of the capital.

zebedy

Or... if you are certain you will manage to save, say £3K and will not need to pull it back at any time, or if new deal only offers 10% overpayments with no redemption charge, then get the new deal for £90K not for £93K. Then if you've actually managed to save £5K not just 3£K you can make a £2K overpayment on new deal straight away.

This is what I did. My new mortgage only allows 10% overpayment per year.

andysdad_2

Also remember you can change the term when you take out your new mortgage deal. So you do not take out a new 25 year deal, but reduce it for the years you have already paid.
You could also work back from what you can afford per month to get the new term. You may find you can afford a 20 year term rather than 23 years. This has the added advantage that if the deal has limited overpayments per year like zebedy's you have built some into your standard payment.

StuartGMC

If you are confident that you can make savings but, want to have the flexibility to account for changes in circumstances ahead, why not consider an offset mortgage? You indicate you can achieve 10% of capital in savings this summer which you can keep to offset (so interest is only on the remaining 90%) and as your savings increase so the capital incurring interest decreases.

This does need care vs. the rates on offer, but do look into it (our equivalent mortgage interest rate at the moment is 2.16%); there are usually no limits on overpayment or on reducing the term. Basically, you overpay each month AND offset and watch the end date accelerate towards you :j

We have had a 25yr mortgage since Oct 1994 when interest rates were much higher than today, but overpaid throughout to 2006. This saved 3yrs at a time when income dropped due to arrival of daughter and wife has since been working part-time.

We remortgaged June 2006 for only 10yrs (ie 3yrs less than original), and offsetting and overpaying will reduce this by at least 2yrs 10mnths, and more likely 3yr 6mnths.

To answer the true MFW evangelists: We could pay back very much faster, but, my preference is to be investing at the same time in ISA Stocks & Shares at about the same amount as our mortgage per month (in Funds in UK & Latin America) as they are cheap at the moment and UK should start to grow again from 2011-12 in my view out pacing savings rates. But, as always, it's personal choice which will dictate your investment planning and debt reduction (I assume you are of course debt free already apart from the mortgage).

I also advocate enjoying life as well; don't make repaying early such a difficult thing that it is a burden, you still need to enjoy life and have some treats, as you never know what is round the corner.

Good luck in your reviews, and as others note, now is the time to start gather your data on available options and running those online calculators. It is never too early to arm yourself with information and it is always beneficial to overpay even by a small amount!