Rather specific Mortgage query

[Pestilence]

Hey folks -- just a (potentially) quick mortgage query for anyone out there whose brains are actually functioning after the work day! Here goes:

I noticed a rather decent fee-free mortgage offer today which would allow me to take the mortgage/loans (basically everything) under the one wing of my current bank, which to me is a major plus in terms of managing the finances, but the main issue is that I'm not really sure whether there's a point in moving.

The current mortgage is 1 year outside of the fixed rate period (which was 5 years), with a current interest rate of 4%. Now, I can move this mortgage to the current offer with my own bank, but the only way that that improves on the current monthly spend is to increase the term by 5 years. The new offer is 2 years fixed at 4.49% before moving to their SVR (3.69% at the moment, so better than my current lender).

Thing is, looking at it on the surface I'm not too convinced. I mean, the intention would be to move the mortgage, extend the term to lower the monthly payments, and then overpay those payments every month by approximately £140. As far as I understand, any overpayments go directly from the balance. Does this seem like an idea? Two years really is the utter maximum length of time that we really want to be staying in this property (it's an utter hell hole) so one would assume that porting with those goals is indeed the best way to go in terms of lowering the overall loan balance to ensure some extra cash when selling up.

Something inside me, though, perhaps just my own pessimism, is seeing the increased fixed rate for those two years as something that makes it not worthwhile -- alongside the factor of extending the mortgage length by 5 years in order to bring down the monthly payments so that we can actually overpay. Is that a valid strategy or not? My mind just freezes when I think about these things.

Any help/advice would be much appreciated! Oh, and "In Before" the "OMG YOU SHOULD BE A FINANCIAL ADVISOR BEFORE YOU EVEN THINK ABOUT GETTING A MORTGAGE OMGOMGOMG" brigade.

 

[Rids]

To me sounds like there is absolutely zero gain in changing unless you're worried about the effect of an increase in rates over the next two years - paying extra interest when you dont have to seems pointless for the "benefit" of having everything with one provider.

 

[The Halk]

Just to be clear...

You want to increase the term of the mortgage to reduce the payments, and then overpay to compensate... this would have no effect other than meaning you could stop the overpayments at any point.

A Payment 400.
B Increased term payment 340
C Increased term payment with overpayment 400

If that's how simple it is then A and C will have exactly the same end result, although if you have C you can drop back to B.

4.49% isn't a very good 2 year fixed rate - what's your LTV?

 

[Pestilence]

LTV is around 80% at the moment.

As you say, Halk, I don't see much of a benefit over staying put rather than the potential to lower the monthly payments as somewhat of a potential fallback.

 

[Destination]

Can you overpay?
How much can you overrpay each year?
Most mortgages have a max overpayment in the clauses now.

Extending by five years sounds releatively insane btw, but I don't know your exact figures.

 

[Pestilence]

Can you overpay?
How much can you overrpay each year?
Most mortgages have a max overpayment in the clauses now.

Extending by five years sounds releatively insane btw, but I don't know your exact figures.

In this particular situation, we would aim to overpay by around £1800 a year, for approximately 2 years.

Extending the term is really only a way to ensure that that overpayment figure is met, as theoretically that is coming straight off of the balance -- but I don't think it'll make much difference in the long run.

Let's say the current balance was £80,000. Would I benefit by extending that for 5 years, lowering the payments, and adding on £1800/year of overpayments instead of just sticking how it is? Need to sit down and really do the math, I think.

Was just wondering if adding overpayments would chip away at the lot a little faster, considering we will be out of here within 2 years -- negative equity or not. Can't stick living like this anymore, honestly.

 

[The Halk]

Let's say the current balance was £80,000. Would I benefit by extending that for 5 years, lowering the payments, and adding on £1800/year of overpayments instead of just sticking how it is? Need to sit down and really do the math, I think.

All other things being equal, then no.

Each month your payment is set against the mortgage balance.
Each month the interest for the month is added to the mortgage balance.
Any overpayment is simply set against the mortgage balance.

If you increase the term, the interest will remain the same, however your payment will come down slightly because you won't need to make as much of a payment to reach 0 in a longer time than you would normally.

So err.. with fictitious balances

Mortgage over 20 years.
Balance 100,000
Payment 800
Interest 400
Balance 99,600

Mortgage over 25 years
Balance 100,000
Payment 700
Interest 400
Balance 99,700

Mortgage over 25 years with 100 overpayment
Balance 100,000
Payment 800
Interest 400
Balance 99,600

If that's what you're asking then that should hopefully explain it?

 

[Pestilence]

Yep, that explains it just fine, thanks.

Not worth the effort unless there's an appreciable difference in interest rate at the same term length, essentially. Thanks!