Overpayment now or a bulk payment at end of mortgage deal

[d8mok]

Bit of advice needed if anyone knows the answer or has a opinion. Our first mortgage which was a 4 year deal with nationwide ends next October and i unsure of best way to pay a lump off or if it makes any difference at all which way i do it.

Background is that im commission based mostly with a small (10K)basic wage so i struggled to find a lender who would not run away once i mentioned this. My girlfriend is a teacher who is covering maternity cover currently but hopes to find something permanent again soon. We worry a bit about the pending remortgage because of the new rules etc. I earn £35-40k and she is about £28k currently. We have no other debt at all if thats relevant.

Our house originally cost £177000 but i put £65k depsoit. This came out at £507 plus a £100 overpayment every month. balance at the end of 4 years should be £92-93k i guess.


Do i wait until we remortgage next year and then say i want to pay a lump off (circa 25k -30k) the remaining balance or do i max out my overpayments (10% of 112k per year ) so i could pay 10k before october 2016 and another £10k next year plus the usual 12 x £100.

End result surely is the same balance to remortgage give or take a bit of interest ? Do they look more favourably on either method for renewal time?

Our aim is to have as least hassle come remortgage time so im open to suggestions or ideas as its come around so fast and i meant to overpay more but ended up sticking it in savings instead.

thanks

[Sir Bagalot]

I would overpay now and when your new monthly payment is calculated ignore it and carry on with the old amount therefore overpaying some more

[minimods]

I'm in a very similar situation so much so I probably started the same mortgage with the same lender around the same time as you! Personally I would overpay now and reduce your term so you will benefit from the reduction in interest, much more than you would gain with savings. It also makes it easier to swallow, so £10k now, £10k in November then £10k October next year, reducing the chance of it being blown on a shiny toy. As long as you aren't going to need the money back for an emergency, so you'll want a slush fund in the bank.

I'm not sure about looking favourable to a lender but personally if I could see somebody overpaid to the maximum each year then clearly they can afford the mortgage, but maybe that is an over-simplified view?

[Audemars]

Overpay asap to reduce your interest cost and outstanding balance.

The easiest way for a lender to grant you a mortgage is having the smallest amount you want to borrow.

[The Moose]

Overpay as you go along (but don't go over the usually 10% limit during the fix).

Have a play with a calculator such as this: http://www.moneysavingexpert.com/mortgages/mortgag... and work out why interest is a bh!

[Shirt587]

Slightly silly question - what happens in your situation if you don't remortgage? You'll almost certainly go onto the lenders SVR plus a margin, but what does that translate to in £ per month? If it's not significantly different, why go through the hassle of remortgaging and just focus on paying it down further to make any future remortgage easier...

(We've been on a tracker since day one and overpaying as much as possible, so I have no experience/knowledge of remortgaging stuff! )

[Ozzie Osmond]

Shirt587 said:

Slightly silly question - what happens in your situation if you don't remortgage? You'll almost certainly go onto the lenders SVR plus a margin, but what does that translate to in £ per month? If it's not significantly different, why go through the hassle of remortgaging and just focus on paying it down further to make any future remortgage easier...

Precisely my own thoughts too. "Fixing" costs money (on average) and is not a cure-all.

[d8mok]

thanks for info guys.

According to our original mortgage documents the payment goes up nearly £100 a month if we let it run onto the normal rate. Plan is to fix again for a few years.

Going to pop into a store or call them so i know exactly how much i can pay without being charged and pay a lump now and another after October.

[The Moose]

Ozzie Osmond said:

Shirt587 said:

Slightly silly question - what happens in your situation if you don't remortgage? You'll almost certainly go onto the lenders SVR plus a margin, but what does that translate to in £ per month? If it's not significantly different, why go through the hassle of remortgaging and just focus on paying it down further to make any future remortgage easier...

Precisely my own thoughts too. "Fixing" costs money (on average) and is not a cure-all.

It's a gamble at the end of the day.

[All that jazz]

d8mok said:

thanks for info guys.

According to our original mortgage documents the payment goes up nearly £100 a month if we let it run onto the normal rate. Plan is to fix again for a few years.

Going to pop into a store or call them so i know exactly how much i can pay without being charged and pay a lump now and another after October.

Why don't you speak with Nationwide now and see what kind of figures you'd be looking at? Granted any deals they may have running now might no longer be available when you come to re-mortgage but at least you'd get some indication. Also Nationwide is likely to be your best/easiest option overall as they know your income situation and can also see your payment history first hand. The fact you've been overpaying by a significant margin will go very much in your favour and I reckon they'd offer you a reasonably competitive deal to stay with them. It might not be the absolute best available on the market, but you have to consider the potential hassle you're going to have with other lenders and whether all that is worth the effort to save a few quid.

I had this same issue with Alliance & Leicester a long time ago when I'd not long set up as ltd co and my 3 years worth of accounts didn't meet their criteria for a favourable deal as I was paying myself the minimum I could get away with for tax avoidance (as we all do) and they weren't interested in the business income as a whole which showed I could easily afford the repayments. I actually starting paying myself a "proper" wage each month in order to get a more favourable deal but when I worked it all out, the extra tax due on the higher wage payments at the end of the year worked out at roughly the same as the higher monthly payments on the mortgage once the fixed deal had ended, so I hadn't achieved anything other than paid a bunch more tax than I needed to.

[DonkeyApple]

Ozzie Osmond said:

Shirt587 said:

Slightly silly question - what happens in your situation if you don't remortgage? You'll almost certainly go onto the lenders SVR plus a margin, but what does that translate to in £ per month? If it's not significantly different, why go through the hassle of remortgaging and just focus on paying it down further to make any future remortgage easier...

Precisely my own thoughts too. "Fixing" costs money (on average) and is not a cure-all.

Certainly need to be very wary of rollover fees as on such a small mortgage they are going to be a very significant %. The reason short fix deals are so common is that they generate a massive increase in fees extracted from the borrower over their lifetime. Paying £1k in fees every two years over a 25 year debt is ever so slightly fking awesome for the lender in contrast to some of a client who just pays a fee in year one and then never throws any more money worthlessly at the lender for the next 24 years.

[All that jazz]

DonkeyApple said:

Certainly need to be very wary of rollover fees as on such a small mortgage they are going to be a very significant %. The reason short fix deals are so common is that they generate a massive increase in fees extracted from the borrower over their lifetime. Paying £1k in fees every two years over a 25 year debt is ever so slightly fking awesome for the lender in contrast to some of a client who just pays a fee in year one and then never throws any more money worthlessly at the lender for the next 24 years.

A lot of people don't seem to realise this and still go for the lowest rate, completing ignoring the £1k fee....

[cat with a hat]

All that jazz said:

DonkeyApple said:

Certainly need to be very wary of rollover fees as on such a small mortgage they are going to be a very significant %. The reason short fix deals are so common is that they generate a massive increase in fees extracted from the borrower over their lifetime. Paying £1k in fees every two years over a 25 year debt is ever so slightly fking awesome for the lender in contrast to some of a client who just pays a fee in year one and then never throws any more money worthlessly at the lender for the next 24 years.

A lot of people don't seem to realise this and still go for the lowest rate, completing ignoring the £1k fee....

Most people take this into consideration and it can easily work out cheaper to pay the 1k fee than a higher rate. I personally can't complain at < 1.6% interest

[d8mok]

paid £10k off yesterday and im going to do another after October 31st.

[Casa1862]

Why not ask your current lender for their retention deals, if you pick your our product then it can be done online or on the phone in minutes with no need to go through anther application. I've done it several times with Co-Op.You only need to remortgage to a new lender if the deals are crap, but mainly they are fairly good when you take the fees into account. With amount of deposit you've put down you'll be on max LTV anyway.

[vinnie83]

The Moose said:

Ozzie Osmond said:

Shirt587 said:

Slightly silly question - what happens in your situation if you don't remortgage? You'll almost certainly go onto the lenders SVR plus a margin, but what does that translate to in £ per month? If it's not significantly different, why go through the hassle of remortgaging and just focus on paying it down further to make any future remortgage easier...

Precisely my own thoughts too. "Fixing" costs money (on average) and is not a cure-all.

It's a gamble at the end of the day.

How so?

If you calculate the saving over the term of the new deal, compare that to the cost of changing, you soon have a very clear answer as to whether it's cheaper to change or not.

One thing that often confuses me is peoples reluctance to get professional advice. Find a decent broker who charges no/low fees and get them to do all of the work for you. Compare your own research if you have time, and if the broker is saving you more/as much as you could have, then get them to do it for you.

You may also find out about alternative ways of utilising your excess money, like an offset mortgage for example.

• the above is not advice, but just general information.

[vinnie83]

All that jazz said:

DonkeyApple said:

Certainly need to be very wary of rollover fees as on such a small mortgage they are going to be a very significant %. The reason short fix deals are so common is that they generate a massive increase in fees extracted from the borrower over their lifetime. Paying £1k in fees every two years over a 25 year debt is ever so slightly fking awesome for the lender in contrast to some of a client who just pays a fee in year one and then never throws any more money worthlessly at the lender for the next 24 years.

A lot of people don't seem to realise this and still go for the lowest rate, completing ignoring the £1k fee....

The above is a very misunderstood idea of how things work. Yes the banks make money, but they actually make more from people on the SVR than they do from those who are proactive and change.

[The Moose]

vinnie83 said:

The Moose said:

Ozzie Osmond said:

Shirt587 said:

Slightly silly question - what happens in your situation if you don't remortgage? You'll almost certainly go onto the lenders SVR plus a margin, but what does that translate to in £ per month? If it's not significantly different, why go through the hassle of remortgaging and just focus on paying it down further to make any future remortgage easier...

Precisely my own thoughts too. "Fixing" costs money (on average) and is not a cure-all.

It's a gamble at the end of the day.

How so?

If you calculate the saving over the term of the new deal, compare that to the cost of changing, you soon have a very clear answer as to whether it's cheaper to change or not.

One thing that often confuses me is peoples reluctance to get professional advice. Find a decent broker who charges no/low fees and get them to do all of the work for you. Compare your own research if you have time, and if the broker is saving you more/as much as you could have, then get them to do it for you.

You may also find out about alternative ways of utilising your excess money, like an offset mortgage for example.

• the above is not advice, but just general information.

It's a gamble because if the interest rate goes up your monthly payments go up...

[vinnie83]

The Moose said:

vinnie83 said:

The Moose said:

Ozzie Osmond said:

Shirt587 said:

Slightly silly question - what happens in your situation if you don't remortgage? You'll almost certainly go onto the lenders SVR plus a margin, but what does that translate to in £ per month? If it's not significantly different, why go through the hassle of remortgaging and just focus on paying it down further to make any future remortgage easier...

Precisely my own thoughts too. "Fixing" costs money (on average) and is not a cure-all.

It's a gamble at the end of the day.

How so?

If you calculate the saving over the term of the new deal, compare that to the cost of changing, you soon have a very clear answer as to whether it's cheaper to change or not.

One thing that often confuses me is peoples reluctance to get professional advice. Find a decent broker who charges no/low fees and get them to do all of the work for you. Compare your own research if you have time, and if the broker is saving you more/as much as you could have, then get them to do it for you.

You may also find out about alternative ways of utilising your excess money, like an offset mortgage for example.

• the above is not advice, but just general information.

It's a gamble because if the interest rate goes up your monthly payments go up...

So not changing is a gamble, changing is a gamble, so we can agree that since both are gambles neither one in that respect is better than the other.

One thing I can confidently say is that someone who stays on the SVR for the length of a mortgage will be thousands worse off than one who changes every few years (wisely) and loses the gamble occasionally (like ending up on a fixed rate when BOE rate starts dropping).

[All that jazz]

Do you actually go on the SVR though? Shirley if you speak to your current lender and tell them x has offered you a better deal so you're planning to switch them, they are unlikely to say "OK, t'ra!" if you have a solid repayment history and would offer you a deal to stay with them?