Remortgaging, worth overpaying just before to unlock better LTV rates.

Ahleckz

Ahleckz

Ahleckz

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So, I need some help - aka #howdoyouevenlife?

My mortgage fixed rate is coming up soon and I'm keen to fix for another three years. However, I'm trying to figure out if it's worth overpaying to get to a lower LTV.

If I don't repay, I can fix at 2.49% for three years and my payments would be £344.15 (a modest saving on what I pay now).
If I overpay £1650 I can get to 75% LTV and get a fix of 2.09% and pay £322.71 for a three year period.
Term on the above would both be 22 years.

Now, I reckon it makes sense to make this overpayment but I'm struggling to get my head round it and what it's actually really saving me. On the non-overpaying option I'd pay £771.84 more during the fix but I wouldn't be forking out £1650 so thus really saving me £878.16. But then again, my total balance would be lower if I overpaid.

What I'm really asking is does it make sense to make this overpayment, and take the lower payments or keep the money in my pocket and just pay the higher rate. Or are the margins that small it doesn't really matter?

For what it's worth, I can afford the £1650 overpayment with no issue but also can happily afford paying £344.15 is still a saving on what I'm currently paying. There wouldn't be a fee for making this over payment either.
 
What does the £1650 do to the total life of the mortgage, interest payable over full term and total borrowed?

You need to look at overall borrowing in your scenario and not just what you save putting the extra in over the pm fixed discount rate period.
 
You need to think about it in terms of how much you owe at the end of the term rather than how much you've paid over the term. You'll be much better off having paid the £1650 and got the lower rate.

If you can afford the £1650 lump sum and the higher monthly payment, why not do both? (check that your lender will allow you to make the monthly overpayments first though)
 
Scrutinize said:
What does the £1650 do to the total life of the mortgage, interest payable over full term and total borrowed?

You need to look at overall borrowing in your scenario and not just what you save putting the extra in over the pm fixed discount rate period.
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Apparently I will save £1368 in interest, and pay it off 8 months earlier which isn't to be sniffed at. But trying to think of saving that over a 22 year time period is pretty hard.

touch said:
You need to think about it in terms of how much you owe at the end of the term rather than how much you've paid over the term. You'll be much better off having paid the £1650 and got the lower rate.

If you can afford the £1650 lump sum and the higher monthly payment, why not do both? (check that your lender will allow you to make the monthly overpayments first though)
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I stupidly didn't think to factor this scenario in. That certainly seems to be the best idea, and would likely save me a fair bit of money and would help an awful lot in 3 years time when I'd likely be looking to fix again (or move on and have more equity available in my property).
 
Have you had your house valued recently? If not do this as the value has most likely gone up. Another way to reduce the LTV without additional cash outflow (e.g additional payments)
 
reilly said:
Have you had your house valued recently? If not do this as the value has most likely gone up. Another way to reduce the LTV without additional cash outflow (e.g additional payments)
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I was in a similar situation last year, needed £1000 more to drop into the next bracket. I asked about updating the valuation of the house (zoopla said prices had increased by 2% in my postcode which would have been enough without any additional payments) but the lender would only accept an official surveyors valuation which would have cost about £250 with the risk that they might not even increase the valuation. In the end I just paid the £1000, it's not like its wasted money (however much it hurts at the time :p)
 
reilly said:
Have you had your house valued recently? If not do this as the value has most likely gone up. Another way to reduce the LTV without additional cash outflow (e.g additional payments)
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Some of them base your house value on purchase price + price index changes, so on my very first remortgage they valued it higher as the prices had gone up, which would also mean bracket changes based on that if I was going up a bracket. This was with Nationwide though they may not all do it.
 
I was in a similar situation. I decided against it as the difference was very small the same as you.

What I did instead was increase my payments by £80 a month which rounded it up to exactly £400 a month after talking it through with accord mortgages. This meant that every 4 months I was accruing enough overpayment to take a break from paying my mortgage for a month if I wanted.

At the end of the term (2 years) which is coming up in February I then have the option of moving the overpayments into the capital account or keeping them as overpayments for any future issues for another 2 year term if I want. If I did that for another full 2 year term and figures stayed roughly the same I could then take a payment holiday (by using the overpayments) on my mortgage for a year if I wanted.. I am unlikely to do this mind but the option is there.

This is on a £168k apartment at ish 65% LTV
 
It is always beneficial to pay down the mortgage unless you can earn more interest on the money in savings / investments than the interest rate you are being charged on the mortgage. Or, if you have other debts with higher rates of interest, then it may be beneficial to pay the money off those.

Also rather than looking at the monthly payment as the thing which shows your saving, you should ,as you have, look at the overall effect (paying extra off will always make it cheaper in the long run). You also never know what effect it may have further in the future. Paying that lump off now might mean next time you are changing the rate it helps you even further down the LTV bandings.
 
dowie said:
Then you can pay nearly 10k a year in rail/tube fares instead :)
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Depends where you live. I am out 20 miles (40 min train journey) from my Zone 1 terminus and it's £3500 a year for a gold travelcard. 10k must be somewhere with a horrendous commute?
 
Em3bbs said:
Depends where you live. I am out 20 miles (40 min train journey) from my Zone 1 terminus and it's £3500 a year for a gold travelcard. 10k must be somewhere with a horrendous commute?
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What is a gold travel card? Does it include tube travel too?

Edit - it seems the gold card is just some discount card you get as part of a season ticket?

Yeah 10k is rather extreme, I think it is Swindon rail fares + tube that can get close to that. Obvs thats a bit further out than the travel area you're in. I know some people who live further out in Essex and pay something like 5k and then another grand or so on top of that for the tube...
 
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Overpay to get the lower rate, then make the £344 payments every month, it will shorten your term for sure.
 
dowie said:
What is a gold travel card? Does it include tube travel too?

Edit - it seems the gold card is just some discount card you get as part of a season ticket?

Yeah 10k is rather extreme, I think it is Swindon rail fares + tube that can get close to that. Obvs thats a bit further out than the travel area you're in. I know some people who live further out in Essex and pay something like 5k and then another grand or so on top of that for the tube...
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It's just a gold coloured travelcard you get when you buy an annual one - so the same as a normal travelcard (ie works with the tube) but you get benefits like discounted rail fares because you bought an annual one. It's not a separate card or anything.

That's surprising people have to pay more for tubes on an annual ticket in Essex, surely it would work out cheaper to buy a travelcard?
 
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