What's happened with friends mortgage?

Jet

My friend has just £1680 outstanding on her mortgage. She paid off the vast majority of the mortgage last year with the first endowment policy. The remainder was due to be paid out by an endowment policy in 3 years time.

She went to her mortgage company yesterday and asked advice on how to decrease her mortgage (it's only £147 a month :rolleyes:) and they have advised her to not cash in endowments until maturity in 3 years time and have put her on a repayment mortgage which means her payments are now £52 per month, saving her nearly £100 a month.

How can switching from interest only to repayment mean that her payments are so much less and why was she paying so much before?

dunstonh

How can switching from interest only to repayment mean that her payments are so much less and why was she paying so much before?

It cant unless they have extended the term.

JimmyTheWig

I don't see how she could have been paying £147 a month interest only on a £1680 loan. That's 105% interest!

The £52 per month repayment, however, sounds reasonable. That's about 7.5% interest.

The question, as you have said, is why was she paying so much before.
Maybe she wasn't and someone somewhere along the line got it wrong?
Or was that what she was paying before she paid off the vast majority of the mortgage? Maybe the repayment she made didn't kick in in terms of interest until the end of the year or something. In which case she's done the right thing in getting it sorted!
Or maybe that is the amount that she had been paying and the vast repayment she made brought forward her mortgage free date, rather than reduced her monthly payments (when I've made overpayments in the past [those were the days!] I've had this option). In which case if she had done nothing her mortgage would have been paid off in about a year's time.

But in any case the new payments sound about right. Not cashing in the endowment is almost certainly the right thing to do, as the mortgage company correctly advised.

If she can afford more than £52 a month then she could maybe save £100 over the next few years by paying off more and so paying the mortgage quicker. But other than that everything looks fine now.

Cazza

When she said her payments were £147 per month, might she have been including payments to the endowment???

Jet

Cazza wrote: »

When she said her payments were £147 per month, might she have been including payments to the endowment???

No I know these are extra. I'm almost certain that the £147 was the original monthly payments that she has paying for the last 20 odd years, but now she has paid off majority of mortgage why didn't the interest payments reduce accordingly - seems to me she was paying interest on a 25k ish mortgage (this was the original mortgage amount) but actually only having a £1680 mortgage. How can that have happened? :eek:

dunstonh

Jet has it. She never reduced them after paying off the chunk with the first endowment.

The interest may have reduced but her payments remained the same. She needs to verify this by looking at her mortgage statements since she paid the first endowment chunk in. Her mortgage balance should have been reducing each year from that point assuming the higher monthly payment was kept.

Jet

dunstonh wrote: »

Jet has it. She never reduced them after paying off the chunk with the first endowment.

The interest may have reduced but her payments remained the same. She needs to verify this by looking at her mortgage statements since she paid the first endowment chunk in. Her mortgage balance should have been reducing each year from that point assuming the higher monthly payment was kept.

So she was effectively paying off capital each month anyway meaning that her mortgage would have been paid off much quicker than the 3 years and then she would have had a lump sum endowment to look forward to?

Oh and she's said that she's going to pay the bank £1.50 per month to look after her deeds once the mortgage is paid off - does she need to do that? Don't solicitors do it for free? Or does she need to do it all in this age of computerised everything?

JimmyTheWig

dunstonh wrote: »

Jet has it.

I said it first!