Kyle T
Premium Member
Registered: 11th Sep 04
Location: Selby, North Yorkshire
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I've had my house on the market most of 2013. Loads of viewings but no offers.
Obvious adjustment to make is the price, but that will put us in a position where we can't buy what I think we should be doing so with that in mind I've decided to take the house off the market and look at a 2 year plan to save up and get out.
I decided 2 years because I've got a couple of savings/investment type things which should come good in the summer of 2016. With that money I should be looking at a good 15-25% deposit hopefully - if savings can improve monthly maybe even more.
I've currently got some money in a current account gaining 3%. After I clear a few things off (since we're no longer needing the cash for moving) I should have £10-15k to "start" my month to month savings that will compliment my other investments.
My fixed term on my current Mortgage expired in June 2013 and I've not setup any other deal yet. I'm pretty sure that means I'm free to make a capital repayment and adjust my repayments however I want (upwards). My interest rate on the mortgage is 4.75%
With that in mind, can you see a problem with me doing the following for 2 years?
Make a £10-15k capital repayment on my current mortgage.
Increase monthly repayments by about £500 per month.
Benefits: Money isn't lying around for me to spend, I avoid paying 4.74% rather than earning 3% on the money I put into the mortgage
Drawbacks: No money lying around
Alternatively
Keep £10-15k in my current account earning 3%
Add around £500 per month to it.
Benefits: Money lying around if I want/need it
Drawbacks: Money lying around if I want it 
I know either way isn't going to result in a huge difference over 2 years, and I think I understand the maths/logic involved but "locking away" £15k is something I want to be sure of.
I called my mortgage lender the other day to find out if a capital repayment of such size would impact my rates, but it wouldn't - so that remains static at 4.75% depending on base rate n' all that.
Am I overthinking/underthinking? Which way would you go?
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daymoon
Premium Member
Registered: 1st Aug 08
Location: Selby, North Yorkshire
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You need to see a mortgage advisor. You are most likely to get a better deal.
Why not have an account that you don't have easy access to(cut the card, don't register online) and have some money there in a case of a real emergency?
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Colin
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Registered: 4th Apr 02
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It's probably going to be easier to justify larger borrowing with some funds in the bank when the time comes rather than a theoretical equity in the current house? Keep that in mind.....2yrs isn't long, maybe move the 15k into a higher interest account if possible and over pay the 500 a month as planned?
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John
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Registered: 30th Jun 03
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Equity isn't theoretical when he's selling the house to buy the new one. The 15k to pay off a higher interest rate still applies.
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Colin
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Registered: 4th Apr 02
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It is theoretical until you've actually sold it. No point declaring to a lender that it's worth xxx when it's only worth xx. Cash in hand is king, it just might be better to have some when looking in 24 months time.
Fees and legal costs can amount to a third of that after all. I just think when getting to that stage of talks having every penny you own in your existing house is not the best way to go in.
Just my personal outlook however, I don't expect everyone to agree.
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Kyle T
Premium Member
Registered: 11th Sep 04
Location: Selby, North Yorkshire
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Fair points on both sides, and I still may see an adviser - just reluctant to pay any money for it
Overpaying each month and keeping the bulk to hand maybe a nice middle ground.
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Ian
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Registered: 28th Aug 99
Location: Liverpool
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There's no substitute mathematically for paying off the debt.
Absolute no-brainer for me, pay down the capital, no money lying about but you can borrow if you need it, or discontinue the overpayment and save up.
Mortgage advisor is talking semi-balls, it might not affect your rate because £10k doesn't change your loan-to-value ratio a sufficient amount, but the entire system of LTV tiers is based around having more equity in the house meaning you come out with a better rate.
So in the worse case, you'll be closer to an LTV threshold in order to continue working towards crossing it, in the best case you may only need a favourable valuation, or your overpayments will actually take you there and there is your better rate right there.
And even if you don't make an LTV threshold in the re-mortgage, you'll still be borrowing less.
I can see no reason why you wouldn't pay it off. Except maybe material possessions and nice food. But the maths is stacked one way only.
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Kyle T
Premium Member
Registered: 11th Sep 04
Location: Selby, North Yorkshire
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Thanks Ian. It's also worth noting that in 2016 I should have a bigger chunk of cash from other sources, so I won't be relying entirely on my equity when negotiating a new mortgage amount.
I only spoke with my existing lender, I should really do some meerkating to see what else is around. I only owe £70k so £15k is a reasonable dent to my LTV.
D
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Ian
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Registered: 28th Aug 99
Location: Liverpool
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Yes, will depend on the lender as they are free to set their own thresholds.
Many follow each other but there's an entire market out there and I would expect it to have at least some effect with some providers.
Cash from other sources, while not strictly equity, will act in the same way as the amount you wish to borrow will come down accordingly.
I borrowed from other sources to bring mine down, the savings from being in a better LTV band outweighed the cost to borrow. If you have ready money, all the better.
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deano87
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Registered: 21st Oct 06
Location: Bedfordshire Drives: Ford Fiesta
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Also, if you make a capital repayment which is over the usual schedule of repayments, can you not get it back without being penalised? Or is that a myth?
I'd make the capital repayment and save the £500/month in an ISA/savings account etc.
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John
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Registered: 30th Jun 03
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Why save the 500 a month elsewhere? The same maths applies to that as the 15k.
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Rob_Quads
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Registered: 29th Mar 01
Location: southampton
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Yup putting the 500 else where is just going to loose money. You will earn maybe 3% which your paying 4.75 on your mortage. Makes no sense other than to have it accessible.
Regarding getting back over-payments its all down to the mortgage. Some let you pull over-payments back out others don't.
If you don't have any expectation to need the cash then put it on the mortgage. As Ian says, you can always get a small loan to cover an emergency
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pow
Premium Member
Registered: 11th Sep 06
Location: Hazlemere, Buckinghamshire
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Is the interest on the mortgage costing you more than the interest that would be earnt on the savings?
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Robbo
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Registered: 6th Aug 02
Location: London
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quote:
Originally posted by Ian
There's no substitute mathematically for paying off the debt.
Absolute no-brainer for me, pay down the capital, no money lying about but you can borrow if you need it, or discontinue the overpayment and save up.
I can see no reason why you wouldn't pay it off. Except maybe material possessions and nice food. But the maths is stacked one way only.
fully agree. can always discontinue the overpayment if needs be. excellent long term vision IMO
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Robbo
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Registered: 6th Aug 02
Location: London
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quote:
Originally posted by pow
Is the interest on the mortgage costing you more than the interest that would be earnt on the savings?
what savings accounts pay more for £10-15k than would be saved by paying down a compounding mortgage which is heavily stacked in weight of interest 
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Kyle T
Premium Member
Registered: 11th Sep 04
Location: Selby, North Yorkshire
User status: Offline
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Thanks all for the input, seems like my way of thinking is sensible.
We've done a bit of thinking over night/this morning - and there's a couple of things we want to do different now.
I've still got £8k on a loan (My ex-Car  ) which I'm paying about 5% on, so we're going to nuke that.
I'm currently paying £380 p/month on mortgage and £320 on the above loan. The monthly "loan" money will go straight to the mortgage making it £700 and we'll add a further £300 to make it a nice square £1k.
We're actually looking at paying ~£1k a month when we move on a new mortgage based on the properties we'd like - so it will be good practise.
This will give us another £200 a month to "save" in an account as a rainy day fund, probably let it get to £1000 and just so it's there and quickly accessible.
That still leaves us with healthy "spending" money each and all the other bills n' shit.
Going back to the capital repayment, I'll have about £8k left of that - possibly £6k when we get back from Florida So that can go onto the mortgage later in the year.
The only thing I need to work out now, is whether it's worth sticking with Santander on my current "non-deal" arrangement at 4.75%, or whether I should fix in with someone else for the two years.
I did some compare the meerkatting and I think I need to research all of the figures, but to get £1000 monthly repayements factoring in the £6k capital... I'd be down to a 6 year mortgage  I just don't understand initial rates vs overall cost for comparison?
If I did a new deal with the £1000 per month payments, I guess my flexibility really does vanish - so perhaps sticking it out with Santander and "no deal" is the best way forward.
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dannymccann
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Registered: 9th Aug 06
Location: Doddington, Lincolnshire
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Mathematically, you should pay off debts in the order of highest interest rate cost first. Once all debt has been wiped, you are 0% interest cost, so any 'spare' cash can be used to build up savings. Obviously factor in early repayment fees into that.
Therefore, paying off car loans / credit cards etc makes more sense than overpaying the mortgage, but once they are paid overpay the mortgage to maximise the efficiency of your cash.
Obviously this is theoretical and it is widely acknowledged that you should have a 6 month savings back up to draw on in the case of redundancy / super emergencies.
I really wouldnt suggest committing to a mortgage deal that ties you in to a higher payment per month. Go for a longer term = lower monthly repayment but on a product that allows you to make enough overpayment / month that fits in with your budget. For example, my Halifax 36yr fix @ 3.99% is epicly long, but I can make up to 10% repayments over a rolling 12 month period before incurring any ERCs. Yes, I could've reduced my term to 15 years and still (just) afforded the required minimum monthly repayment but should my circumstances change I would be tied to paying £1200 a month. As it happens, my child came along, so the fact I can now turn down the overpayment dial so it suits my circumstance is ultimately more beneficial than a financial saving alone.
Might not apply to the values stated in this thread, but have you looked at Offset products? YBS are widely recognised as having some excellent products, I was on the fence about whether to go fix or offset, only narrowly choosing the Fix over it because it was just a damn site easier not having to get revals done and all the rest of it
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Ian
Site Administrator
Registered: 28th Aug 99
Location: Liverpool
User status: Offline
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quote:
Originally posted by pow
Is the interest on the mortgage costing you more than the interest that would be earnt on the savings?
It is was possible to do what you're suggesting, everyone would have interest only mortgages, and put the capital portion in to savings, then pay the capital off at the end of the mortgage term with the savings. And assuming the savings account was favourable to the down-payment approach, you'd have a surplus which you could pocket.
In fact, that used to be fairly common mid 90s, called endowment mortgage, ended up being a shit idea because the savings don't compound fast enough and you end up short at the end of the term with a large capital amount remaining. Doubly fucked by the fact that by that point, most people are retired and not in a position to negotiate a traditional mortgage on the bit which remains.
Hence why you don't see those much any more.
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Ian
Site Administrator
Registered: 28th Aug 99
Location: Liverpool
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quote:
Originally posted by Kyle T
The only thing I need to work out now, is whether it's worth sticking with Santander on my current "non-deal" arrangement at 4.75%, or whether I should fix in with someone else for the two years.
Not surveyed the market at all but my gut feeling is not only will you not be able to stick that low, but you'll also have an arrangement fee for the privilege.
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Ian
Site Administrator
Registered: 28th Aug 99
Location: Liverpool
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quote:
Originally posted by Kyle T
If I did a new deal with the £1000 per month payments, I guess my flexibility really does vanish
Which is why you'd set it up with lower payments over a longer term on the basis that you can overpay if you wish.
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Kyle T
Premium Member
Registered: 11th Sep 04
Location: Selby, North Yorkshire
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Made a start on actioning my intentions this morning.
Went to estate agents and took my place off the market, pretty easy - they don't even have to collect a sign as it blew away a week ago
Next phoned nationwide and settled the car loan.
I now need to talk to Santander and make sure I can overpay as planned without paying a fine or whatever.
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Kyle T
Premium Member
Registered: 11th Sep 04
Location: Selby, North Yorkshire
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And that's Santander sorted, they'll keep my DD the same then I'll just do a standing order to the account details they gave me to pay off the capital.
So easy, wish I did this a while ago.
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dannymccann
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Registered: 9th Aug 06
Location: Doddington, Lincolnshire
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Make sure you use the overpayment calculator on moneysavingexpert website to cheer you up even more 
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