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  • FIRST POST
    • 7sefton
    • By 7sefton 12th Oct 18, 11:10 PM
    • 449Posts
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    7sefton
    Remortgage: reduce LTV for lower rate, or save the money?
    • #1
    • 12th Oct 18, 11:10 PM
    Remortgage: reduce LTV for lower rate, or save the money? 12th Oct 18 at 11:10 PM
    Hello

    I'm a bit confused and would appreciate your thoughts...

    At the end of the year my fixed rate mortgage deal comes to an end. I am going to transfer to a new 2 year fix with the same lender (no fees). My options are:

    Overpay 6.5K to bring my LTV below 60% and therefore get a rate of 1.54%

    Or simply transfer my existing balance and get a rate of 1.59%

    I can save that 6.5K in a savings account paying 1.5%, but I can't work out if I'm better doing this or overpaying to get the lower rate.

    Thanks for any advice!
Page 1
    • stevenhp1987
    • By stevenhp1987 13th Oct 18, 7:42 PM
    • 710 Posts
    • 551 Thanks
    stevenhp1987
    • #2
    • 13th Oct 18, 7:42 PM
    • #2
    • 13th Oct 18, 7:42 PM
    At those interest rates, I would overpay to bring the LTV down.

    You would, effectively, be saving the 6.5k at 1.59%, which is higher than 1.5% as well as lowering the amount of interest you accrue on the mortgage. So you would save more interest than you would earn in the savings account.

    If this will wipe your savings though, it might not be wise. Always good to have some spare cash lying around for emergencies.
    • ACG
    • By ACG 13th Oct 18, 8:03 PM
    • 17,680 Posts
    • 9,468 Thanks
    ACG
    • #3
    • 13th Oct 18, 8:03 PM
    • #3
    • 13th Oct 18, 8:03 PM
    At those rates I would go with whatever your preference is. On 100k you are talking about 35 a year and that is assuming you do not put the money in to a savings account.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • getmore4less
    • By getmore4less 13th Oct 18, 8:06 PM
    • 33,302 Posts
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    getmore4less
    • #4
    • 13th Oct 18, 8:06 PM
    • #4
    • 13th Oct 18, 8:06 PM
    Until you get a savings rate over 1.59% there is no calculation to do.
    • 7sefton
    • By 7sefton 13th Oct 18, 11:49 PM
    • 449 Posts
    • 104 Thanks
    7sefton
    • #5
    • 13th Oct 18, 11:49 PM
    • #5
    • 13th Oct 18, 11:49 PM
    Thanks all. What if I could get an average of 3% through use of regular savers etc on the 6.5K... would that make it better for me to save the cash rather than overpay?
    • scotgal30
    • By scotgal30 14th Oct 18, 12:20 AM
    • 54 Posts
    • 22 Thanks
    scotgal30
    • #6
    • 14th Oct 18, 12:20 AM
    • #6
    • 14th Oct 18, 12:20 AM
    3% is higher than 1.59% so......... ����
    • getmore4less
    • By getmore4less 14th Oct 18, 7:48 AM
    • 33,302 Posts
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    getmore4less
    • #7
    • 14th Oct 18, 7:48 AM
    • #7
    • 14th Oct 18, 7:48 AM
    Until you get a savings rate over 1.59% there is no calculation to do.
    Originally posted by getmore4less
    Thanks all. What if I could get an average of 3% through use of regular savers etc on the 6.5K... would that make it better for me to save the cash rather than overpay?
    Originally posted by 7sefton
    You missed out the critical piece of information your loan size.

    This uses the standard offset calculation(with offset rate lower rather than higher)


    M : mortgage debt
    S : standard rate
    O : offset rate

    C : savings capital
    N : net savings rate

    Mortgage interest - savings interest == smaller mortgage interest
    (M*S) - (C*N) == (M-C)*O

    which simplified is

    (M*S) - (C*N) == (M*O)- (C*O)

    swap the sides

    C(O-N) == M(O-S)

    which become a simple ratio check of the mortgage saving againt the rate diferential

    C/M == (O-S)/(O-N)
    solving for the known numbers

    M == 6.5k(1.54% -3%)/(1.54% - 1.59%)

    M == 6.5k * 1.46% / 0.05%

    M = 189,800

    for a mortgage less than this keep the savings
    Last edited by getmore4less; 15-10-2018 at 11:04 AM. Reason: added info in Bold.
    • 7sefton
    • By 7sefton 14th Oct 18, 9:08 AM
    • 449 Posts
    • 104 Thanks
    7sefton
    • #8
    • 14th Oct 18, 9:08 AM
    • #8
    • 14th Oct 18, 9:08 AM
    My loan size would be 176500 without the overpayment, or 170000 with it.

    Can anyone help me do the maths please?
    • getmore4less
    • By getmore4less 15th Oct 18, 10:59 AM
    • 33,302 Posts
    • 20,119 Thanks
    getmore4less
    • #9
    • 15th Oct 18, 10:59 AM
    • #9
    • 15th Oct 18, 10:59 AM
    Updated the post with some extra explanation.

    the starting point is saving or no savings/smaller mortgage at lower rate

    ...........................................
    now we have the mortgage size

    Mortgage interest - savings interest == smaller mortgage interest
    (M*S) - (C*N) == (M-C)*O

    (176,500 * 0.0159) - (6,500 * 0.03) == 170,000 * 0.0154.

    2,806.35 - 195 == 2,618
    2,611.35 < 2,618

    keep the savings save money(not a lot)

    you can also solve for break even interest rate
    2,806.35 - (6,500 * N) == 2,618
    N = (2,806.35 - 2,618)/6,500) = 0.028977 = 2.8977%
    Last edited by getmore4less; 15-10-2018 at 11:17 AM.
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