Mortgage advice - possible loan

Derek W

Derek W

Derek W

Soldato
Joined
1 Oct 2008
Posts
12,801
Location
Designing Buildings
Morning all,

I've currently got just under 20k left on my mortgage and my original plan was to carry on what I'm doing at the moment and I'd have my mortgage paid off by January 2024. However, with things rising all the time I'm not sure my current finance habits will be the wisest choice. My mortgage is due to finish in April 2026.

I've narrowed my options down to the following :-

Currently paying 680 a month including overpayments at 1.49per cent however I'm due for a renewal next march. This option would entail paying a 4k lump in January before a final 6 - 7k lump in January 2024. However looking at mortgage rates when I renew the best I appear to be getting with nationwide is 3.4per cent so considerably more than what I'm on but in the grand scheme of things not that bad

Option 2. Take out a 10k loan over 3yrs from the bank of Scotland near the end of this term time and put some of my savings towards paying off the final balance which I think will include an approximate 750quid penalty for early repayment and there will be an approximate 500quid on top of my initial 10k loan. This will mean the mortgage is paid off and my monthly loan repayments work out at just under 300quid instead of 680.

Option 3 reduce my monthly payments based on a 2024 end and see what interest rate I get and overpay whenever I can.

My first instinct is that option 2 is the best option as it won't open me up to the higher interest rates on the mortgages while I'm currently being quoted about 2.9 per cent on a loan from the bank.

Any money wizards able to confirm my potentially flawed logic on the above?
 
With such a small amount left a rate rise is not going to affect you much at all.

But I think a standard personal loan to pay off the balance is also a good plan especially if interest rates are lower than you'd get on a remortgage. Plus you can also overpay a personal loan eg with Zopa I did this recently.

Will you have to pay the early repayment fee if you wait until remortgage is due?
 
Simon0001 said:
I vote for 2. Best to have secure accommodation and more monthly money for food.
Click to expand...
In option 2 he is using his savings to make up the difference though, so if he was short in a month he could just draw down some of that instead. I don't think there is really a wrong answer here just do the option which is lowest interest over the remaining term.

Things to consider:
* overall interest paid in each option
* is he happy using his savings up or is it better to maintain these if the interest difference is low.
* timing
 
Isn't interest at that level like 1 or 2 pounds a day?

If I had 20k left I wouldn't really be bothered about interest rates. More avoiding fees and one offs etc for moving products.
 
At 20k left just go for whatever option doesnt smash you with early repayment fees / arrangement fees etc etc

Eg even at 5% over 4 years that 20k is only going to be costing 2k in interest. That can quickly be surpassed in fees and charges, by the time next march rolls around it might be cheaper just to have your portgage provider roll you onto a tracker for the remaining term.
 
I may be missing something, but I can't see how taking out a loan to repay a mortgage earlier is possibly going to help you. Surely the interest rate on the loan is going to be higher than the interest rate on the mortgage you're paying off? And you say you'll be triggering early repayment charges too.

I think your overall outgoings for this plan have got to be higher, right?
 
You need to decide what your actual aim is, what do you really want to achieve? Are they:
  1. Pay as little interest and fees to the bank as possible.
  2. Pay the mortgage off as soon as possible.
  3. Keep savings in the bank or wherever for whatever.
  4. Reduce your monthly payments to make living easier.
In your position I would pick number 1 in my list if I wasn't worried about number 4 and could manage the extra.

You need to spreadsheet.
 
Thanks for the replies.

I won't have any fees to pay for remortgaging so that can be taken out of any equations. Early repayment fees would be 1per cent in my final year of my term which I'm in but at that point I'm sure it gets waived in the last few months before I have the option to remortgage but included it as a potential fee I have to pay.

I take on board that at less than 20k the interest won't be huge unless they spike in the next six months.

My thinking for option 2 is that on my initial inspection the interest on a loan would be less than the mortgage of which I'm being quoted 3.4per cent just now and probably? Going to rise by the end of the year?

As @Mysterae_ has listed above the goal is to pay off the mortgage as soon as possible but I also dont want to pay more interest or fees to the bank than necessary and it'll reduce my overall monthly spending circa 300quid between my current mortgage and overpayment compared to a loan.

I'll take a further look into things to see which route would be more favourable.
 
bazzabear said:
I may be missing something, but I can't see how taking out a loan to repay a mortgage earlier is possibly going to help you. Surely the interest rate on the loan is going to be higher than the interest rate on the mortgage you're paying off?
Click to expand...
Under 3% personal loans are still available according to moneysavingexpert's best buys. The OP may not get those rates though, or by next year they may have gone up also. However as it stands today, those rates are lower than fixed rate mortgages (but higher than trackers).


@Derek W have you calculated what you will owe when your current term expires in March 2023? If you're overpaying now and intend to sustain that, you still have another 9 months to go which is over another £6k off your stated £20k remaining.

If you're interested in saving money right now then just stop overpaying for a bit. Save the difference, and if you didn't need to spend it, pay it off in one hit in a few months time instead.

If you have savings currently then your figures seem to suggest that you'll barely have £5k left on the mortgage in two years time.
 
danlightbulb said:
Under 3% personal loans are still available according to moneysavingexpert's best buys. The OP may not get those rates though, or by next year they may have gone up also. However as it stands today, those rates are lower than fixed rate mortgages (but higher than trackers).
Click to expand...

Ah, I see. I was comparing to the current interest rate he quoted. I'm very surprised to learn that you can get an unsecured loan at a lower rate than a mortgage though!
 
danlightbulb said:
@Derek W have you calculated what you will owe when your current term expires in March 2023? If you're overpaying now and intend to sustain that, you still have another 9 months to go which is over another £6k off your stated £20k remaining.

If you're interested in saving money right now then just stop overpaying for a bit. Save the difference, and if you didn't need to spend it, pay it off in one hit in a few months time instead.

If you have savings currently then your figures seem to suggest that you'll barely have £5k left on the mortgage in two years time.
Click to expand...

The figures that I've been working to are as follows for Option 1.

Currently at £19.3k with this months overpayment still to come out. By the end of the year this will be down to approximately £16k. The intention was to drop 4k in January which would mean my redemtion date would come down about a year so potentially March 2025. This would mean that i was in and around £12k when it was time to remortgage. On that basis my final remortgage monthly payments would be similar to what im paying now and I would want to continue the overpayments so that in January 2024 there would be approximately 6k left, which I'd use other savings to pay off. With that train of thought I think i would only have a early repayment penalty when i do my final lump sum as it'll be approximately a year left give or take a month but I'd not want to have a penalty larger than necessary so I'd adjust things accordingly.

In terms of saving, I'm currently putting some money away into a Savings and an Investor ISA along with Premium bonds each which are essentially being used as savings accounts to overpay / complete my mortgage. When i look at option 1 or option 2 I may have to reduce the amount I'm saving come the turn of the year as I have to look at renewing my contract with my energy supplier and I think that'll be at least double possibly even treble what I'm paying now so I'll have to adjust where I'm putting any spare cash. Looking through my bank statements there generally i have had a couple of hundred quid spare before getting paid again so it's not like I'm instantly struggling with things. I just prefer to have a cushion with my cash!
 
Derek W said:
With that train of thought I think i would only have a early repayment penalty when i do my final lump sum as it'll be approximately a year left give or take a month but I'd not want to have a penalty larger than necessary so I'd adjust things accordingly.
Click to expand...
Not sure how that works tbh. If you have finished your mortgage, does an ERC even apply? Mortgages Ive seen allow you to overpay by 10% per year but you seem to be overpaying more than that or planning to and as the amount outstanding gets smaller, your proposed overpayment is going to be a much bigger percentage and you'll be ending your term early but with zero balance. 5% of zero is still zero but not sure if it works like that.

If you're down to only a few k after using savings I think a personal loan to finish it is viable but will depend on the rates and mortgage conditions re the overpayment issue i think. Have you considered just getting the personal loan immediately, banking the cash and paying the lot off at the end of this current term in March 2023?

Have you tried getting some free advice from the likes of L&C?


Edit - a £15k personal loan at 2.8% (MSE best buy list) over 4 years will cost you £873 in total interest for monthly payments of £330. That plus your saved £4k pays off your mortgage and you could apply for the loan now, bank the cash until March and have your mortgage gone. Then you could overpay the loan and halve the term and interest probably. I know with Zopa there was no overpayment limit, I could pay how much I liked as often as I liked.
 
Last edited:
danlightbulb said:
Not sure how that works tbh. If you have finished your mortgage, does an ERC even apply? Mortgages Ive seen allow you to overpay by 10% per year but you seem to be overpaying more than that or planning to and as the amount outstanding gets smaller, your proposed overpayment is going to be a much bigger percentage and you'll be ending your term early but with zero balance. 5% of zero is still zero but not sure if it works like that.

If you're down to only a few k after using savings I think a personal loan to finish it is viable but will depend on the rates and mortgage conditions re the overpayment issue i think. Have you considered just getting the personal loan immediately, banking the cash and paying the lot off at the end of this current term in March 2023?

Have you tried getting some free advice from the likes of L&C?
Click to expand...

I've been with nationwide throughout my mortgage period and the 10 per cent overpayment applies to the original mortgage amount so it my case I'm allowed up to just over 7k overpayment. I think last year going from 37 to 27k I had about 5k overpayment with no penalty.

I need to speak to them nearer the time in terms of any possible penalty when I pay it off but based on the above a final payment of around 6k should be below my 10 per cent allowance but since I'll have about 1yr left on my term would I be penalised

Edit

I had another look on the bank of Scotland personal loan page and it says it can't be used for buying, leasing or towards a deposit on land or property so I might be scuppered for that option?
 
Derek W said:
had another look on the bank of Scotland personal loan page and it says it can't be used for buying, leasing or towards a deposit on land or property so I might be scuppered for that option?
Click to expand...

They all say that, its up to you of course but I would just say its for a car or house improvement project or something. They are extremely unlikely to ever check, and if they do you just point to the car you have on the drive or the newish looking kitchen in your house.

Actually debt consolidation is normally an option, which you could argue is what you're doing. You certainly aren't buying a house - you already own it.
 
You must log in or register to reply here.
Back
Top Bottom