Remortgage Deal!

[Mercenary Keyboard Warrior]

It's not as simple as that. 3 year fix has lower interest rate than a 5 year fix. So it could be £10k savings. If he also uses the extra £40 to make overpayments it could be £12k saved.

If that's enough to push him into a better LTV bracket come deal time then it's even more savings on top so it turns into £20k. Will he save that over 2 years with a 5 year fix? Only if interest rates skyrocket which nobody in Britain can afford

Your maths are terribly out here. For the interest difference to be £40 then the rate is either very close, or the loan is quite small, or both!. You probably need to drop a 0 from all your saving £2000 here and there stuff, forget the £20k thats nonsense.
The only thing that affects total repayable to that sort of extent is massively bringing down the term.

He will save £40x36 = £1440. At the end of the term of 3 years the balance outstanding on both will be the same give or take a few £ due to rounding with rate differentials on an amortising loan. So with the saving he could in theory pay off the £1440 and be £1440 better off. At that point however he needs to set a new deal, only guesswork can be made to what the market place could be then, taking a pessimistic or optimistic view of the marketplace will alter your opinions.

What we can say is that to be in the same position if he fixed for 5 years in the 2 years between the 3 year finishing and the 5 year finishing he would need the rate he pays to be 1.5x the difference hes saving now.
I.e. if he would pay an extra £60 per month once off his 3 year deal. 24X£60 is £1440. So at the end of 5 years he would be in the same position.

 

[Mercenary Keyboard Warrior]

Yeah the overall comparison is for the full 25 years, so it costs up both the 2/5 years at the fixed rate PLUS the remaining 20/23 years at the stupidly high current variable rate.

It might be worth you seeing a broker, most are free unless you actually use them but ours was very useful and we've used him twice. They often get better deals than are available publicly and more tools such as cost over 2/5 years to compare.

You need to check the SVR that they use, there is no std. When I was doing my mortgage a couple of years ago, nationwide were using a fairly sensible SVR so it didnt affect the lifetime cost that much.
And 2 years on a 25 year deal wont make that much diff.

The best way to do this is a simple spreadsheet, quickly model the 25 years with the known rates. The implied SVR can be calculated quite easily as you know the term and repayments, so its a back calculation (unless they already quoted it which is normal)
Then compare the position on the 3 year deal after 3 years and the 5 year deal after 3 years. If the OP will not just spend the £40 a month (as most people would) then sure assume a capital repayment at that point of £1440, reducing the outstanding.

Just a note I mean't to post earlier. People forget that if rates are expected to be volatile in future then longer term fixes tend to be pulled from the market place, or the fix becomes prohibitively expensive. Never just assume you will be able to get a good longer term fix at a good rate in the future.

 

[Ace Modder]

Well my first payment is done after my remortgage, my payment has gone from £665.23 per month down to £517.07 per month.
I am overpaying £140 at least a month every month to get the balance down quicker as I have paid the £665 for almost 2 years now. (I plan to over pay more for most months as I was overpaying at £665 a month too)

Old rate = 4.39%
New rate = 2.09%
Fees = £0
Cashback = £500

Nationwide to Nationwide remortgage took me all of 5mins to complete, it's an online form with barely any fields to complete (due to using my online login). the only fields to check and decide upon was the fixed term period I wanted. (I went 2 years)

 

[Mercenary Keyboard Warrior]

I'm 18 months into a 3 year fixed with Nationwide. I've got £5k doing nothing in my current account so thought it best putting it into the mortgage. From what I'm reading, they can reduce the term or the payments. I don't want either of these, I just want a one off overpayment. This is possible right, and I'm just misreading their website?
Failing that, it seems I can overpay by £500 a month and nothing changes but that would cost me more interest...

Edit: I'm an idiot. Need to check my paperwork to see how much I can pay off in one go as it's not a standard.

When you overpay it has to affect one of the numbers. Pay less for the term, or pay fewer repayments in order to pay off the mortgage.

If your happy with your repayment amount then reducing the term will reduce your overall repaid amount by most over the length of your mortgage.
Normally with Nationwide your extra payments go into a reserve that can be used should you need it, so you use this instead of making payments.

Nationwide interest is calculated daily on recent(ish) mortgages, so having a lower balance will reduce your charged interest every month, so you are in effect making small extra payments every month, and this compounds over time into larger and larger amounts, because every month the interest is lower than it was planned to be

 

[Ace Modder]

^^ That is how compound interest works. I thought everybody knew and understood that anyway. Didn't think it would need explaining.

 

[Mercenary Keyboard Warrior]

Well my first payment is done after my remortgage, my payment has gone from £665.23 per month down to £517.07 per month.
I am overpaying £140 at least a month every month to get the balance down quicker as I have paid the £665 for almost 2 years now. (I plan to over pay more for most months as I was overpaying at £665 a month too)

Old rate = 4.39%
New rate = 2.09%
Fees = £0
Cashback = £500

Nationwide to Nationwide remortgage took me all of 5mins to complete, it's an online form with barely any fields to complete. Other than the fixed term period I wanted. (I went 2 years)

Cripes, I assume you dropped a fair bit of LTV % with that, because 4.09% with Nationwide when you took that out wasn't that good a rate for a short fix, generally. (as you took out at a similar time to me, and I fixed longer at a much lower rate, comparatively)

 

[Mercenary Keyboard Warrior]

^^ That is how compound interest works. I thought everybody knew and understood that anyway. Didn't think it would need explaining.

"From what I'm reading, they can reduce the term or the payments. I don't want either of these"

No offence to the poster but I don't think he was getting it at all.

 

[Ace Modder]

Cripes, I assume you dropped a fair bit of LTV % with that, because 4.09% with Nationwide when you took that out wasn't that good a rate for a short fix, generally. (as you took out at a similar time to me, and I fixed longer at a much lower rate, comparatively)

4.39% rate was crap, I know this, but I only put 5% deposit down, but £665 was still less than I was paying in rent prior to buying my house so overall it made sense to just drop 5% instead of wait and try to save more than 5% deposit.

4.39% was at 95% LTV
2.09% is at 80-85% LTV (I could have got 1.89% but with a £1000 arrangement fee - but 2.09% was with no fee) it worked out better for the no fee option over the 2 year fixed term.

Getting my LTV down by over 10% in under 20 months was good going, my overpayments helped and I knew that at 4.39% APR the overpayment would make a big difference, at 2.09% APR overpayments are still good, but slightly less valued per £1

 

[Ace Modder]

"From what I'm reading, they can reduce the term or the payments. I don't want either of these"

No offence to the poster but I don't think he was getting it at all.

Oh yeah, just re-read his post, a £5k overpayment has to reduce soemthing.... otherwise pay me the £5k instead if you don't want the term or the monthly payment to drop. I will gladly 'invest' it myself for him

 

[Mercenary Keyboard Warrior]

4.39% rate was crap, I know this, but I only put 5% deposit down, but £665 was still less than I was paying in rent prior to buying my house so overall it made sense to just drop 5% instead of wait and try to save more than 5% deposit.

4.39% was at 95% LTV
2.09% is at 80-85% LTV (I could have got 1.89% but with a £1000 arrangement fee) it worked out better not to do this over the 2 year fixed term.

Getting my LTV down by over 10% in under 20 months was good going, my overpayments helped and I knew that at 4.39% APR the overpayment would make a big difference, at 2.09% APR overpayments are still good, but slightly less valued per £1

At yeah 95% makes sense, thats the penalty rate almost
Oh yeah its pretty much a given for most people with rents being what they are now that getting on the property market will save them money, quite absurd but thats the way it is with very low interest rates for buyers.

As you say its an odd thing that over payments save you less at a lower rate (but then your paying less), but even so over the term of your mortgage its still good news Plus for most getting shot of the mortgage is a sudden level of security. I mean you only need to pay the bills and your safe in your own home once your mortgage free.

 

[Ace Modder]

Yeah, my mortgage term was 30 years. My aim is to get it paid fully as close to 15 years as possible.

But I'm not reducing the term on it, yet. Keep the freedom and just ensure the overpayments are what it needs to be to get to the 15 year period!

 

[Mercenary Keyboard Warrior]

Yeah, my mortgage term was 30 years. My aim is to get it paid fully as close to 15 years as possible.

But I'm not reducing the term on it, yet. Keep the freedom and just ensure the overpayments are what it needs to be to get to the 15 year period!

Are you asking them to recalc the payments then to reflect the lower outstanding? (or leaving at the state of at next review recalculate)

Eg i am overpaying, I selected reduce term, but my end date on the system remains at the same date. All that is happening is that the overpayment reserve goes up and they do not change my monthly repayments to a lower amount.

If you reduce the payments then your overpaying by more. Effect is the same until you look at the max overpayments clause, which limits to a percentage of the original loan amount typically on a NW fixed deal.
If your remotely close to the overpayment cap then you want to reduce the term not the repayments, as that gives you most headroom to overpay, hope that makes sense

 

[Psycho Sonny]

It's not wise to use every penny you have to overpay in case something happens and you need cash. Look at savings accounts or current accounts and see if they will offer you a better or similar interest rate as to that of your mortgage and then just keep cash in there.

e.g. my bank only pays interest on the first £2.5K so if I had £5K in there i would take £2.5K out and use it to overpay. keep the other £2.5K just in case boiler dies or I fancy a new car, etc I have a deposit to add onto trade in.

Are you asking them to recalc the payments then to reflect the lower outstanding? (or leaving at the state of at next review recalculate)

Eg i am overpaying, I selected reduce term, but my end date on the system remains at the same date. All that is happening is that the overpayment reserve goes up and they do not change my monthly repayments to a lower amount.

If you reduce the payments then your overpaying by more. Effect is the same until you look at the max overpayments clause, which limits to a percentage of the original loan amount typically on a NW fixed deal.
If your remotely close to the overpayment cap then you want to reduce the term not the repayments, as that gives you most headroom to overpay, hope that makes sense

it's unlikely most will hit the cap tbh.

10% of the original loan outstanding. so on a £200K mortgage that is £20K a year on top of your normal payments. if you could afford this in the first place then it's far more likely you would have taken out a nearer to £300K mortgage rather than £200K unless you have suddenly had a large boost in income. those that had the ability to get a £300K mortgage before but opted to only go for £200K will have likely reduced the term by a lot to make up for it. so a 15 year mortgage instead of a 30 year mortgage or something.

 

[Mercenary Keyboard Warrior]

It's not wise to use every penny you have to overpay in case something happens and you need cash. Look at savings accounts or current accounts and see if they will offer you a better or similar interest rate as to that of your mortgage and then just keep cash in there.

e.g. my bank only pays interest on the first £2.5K so if I had £5K in there i would take £2.5K out and use it to overpay. keep the other £2.5K just in case boiler dies or I fancy a new car, etc I have a deposit to add onto trade in.



it's unlikely most will hit the cap tbh.

10% of the original loan outstanding. so on a £200K mortgage that is £20K a year on top of your normal payments. if you could afford this in the first place then it's far more likely you would have taken out a nearer to £300K mortgage rather than £200K unless you have suddenly had a large boost in income. those that had the ability to get a £300K mortgage before but opted to only go for £200K will have likely reduced the term by a lot to make up for it. so a 15 year mortgage instead of a 30 year mortgage or something.

Of course the std position of attempting to have 6 months money in the bank is a given, where 6 months means the minimum to cover bills, mortgage etc.

I semi agree on the 10% thing, I recently changed the plan to pay off the mortgage over 10 years early so I am actually potentially hitting the cap. I was just highlighting the effect of reducing term vs reducing payment if there is a cap issue, and that whilst both have the same effect one reduces the cap whilst the other doesn't (assuming someone is intent to make the same £ payment)

Just because I could borrow an extra £200k didn't mean I did. I want to be mortgage free asap and then will consider options, semi retirement or move to a different location for retirement home potentially. Not everyone just borrows the max they can, some people still have some self control

 

[Ace Modder]

Are you asking them to recalc the payments then to reflect the lower outstanding? (or leaving at the state of at next review recalculate)

Eg i am overpaying, I selected reduce term, but my end date on the system remains at the same date. All that is happening is that the overpayment reserve goes up and they do not change my monthly repayments to a lower amount.

If you reduce the payments then your overpaying by more. Effect is the same until you look at the max overpayments clause, which limits to a percentage of the original loan amount typically on a NW fixed deal.
If your remotely close to the overpayment cap then you want to reduce the term not the repayments, as that gives you most headroom to overpay, hope that makes sense

No, I'm just letting the balance reduce quicker. This first set of overpayments was primairly to drop my LTV down to get a better rate. I'm just letting the pot sit there with lower interest being added daily. When I come to my next fixed term remortgage, I intend to keep the term the same, so the monthly payments will drop again even if the rate I get doesn't improve. Continue to over pay again at around £665-£800 per month and then maybe my standard monthly min payment could be £300

Maybe in a few year look at properly reducing the term, but for for the forseeable future leave it ticking on the original 30 year plan but with lesser outstanding balance.

Here is what I have done so far in terms of over paying in 2017 so far.

 

[Psycho Sonny]

No, I'm just letting the balance reduce quicker. This first set of overpayments was primairly to drop my LTV down to get a better rate. I'm just letting the pot sit there with lower interest being added daily. When I come to my next fixed term remortgage, I intend to keep the term the same, so the monthly payments will drop again even if the rate I get doesn't improve. Continue to over pay again at around £665-£800 per month and then maybe my standard monthly min payment could be £300

Maybe in a few year look at properly reducing the term, but for for the forseeable future leave it ticking on the original 30 year plan but with lesser outstanding balance.

Yeah I'm reducing the monthly amount too with over-payments rather than the term. It gives you a lot more flexibility. It also eases the pain of yearly price hikes on insurance, utilities, etc.

e.g. last year I hit the over-payment cap. it reduced my monthly mortgage by £100 per month. so I now have a spare £100 a month that would normally go to the mortgage but can now go elsewhere. i'm now into year 2 of mortgage so can start overpaying again. however I have decided to invest the money instead into a couple of things. if my investment pays off then 50% of my mortgage will pay for itself every month.

 

[Mercenary Keyboard Warrior]

No, I'm just letting the balance reduce quicker. This first set of overpayments was primairly to drop my LTV down to get a better rate. I'm just letting the pot sit there with lower interest being added daily. When I come to my next fixed term remortgage, I intend to keep the term the same, so the monthly payments will drop again even if the rate I get doesn't improve. Continue to over pay again at around £665-£800 per month and then maybe my standard monthly min payment could be £300

Maybe in a few year look at properly reducing the term, but for for the forseeable future leave it ticking on the original 30 year plan but with lesser outstanding balance.

Here is what I have done so far in terms of over paying in 2017 so far.

Ah right, they seem a little unclear, because they say the default is to reduce your monthly payments, but that you can reduce the term if you make a capital repayment of £500 or more. They are a little unclear if this means in total or a specific single payment (which is my suspicion). As I am paying more than £500 or more at a time I needed to specifically say term so they didn't reduce my monthly payments, and hence by default increase my overpayment.

There are actually 3 options if you set it up, reduce term, reduce payment amount, reduce payment amount at next review. When a review takes place seems undefined. I suspect its on a rate change or similar, but I couldn't find that specifically detailed.

Do you get any letters from them in regards overpayment?
I get 2 a month, when I make the overpayment, typically mid month, I then get a letter soon after saying "thanks, we have received your overpayment of £x-y, we have reduced your term to xxx years.
x being the overpayment amount, and y being my normal DD amount.
Then when my DD comes out I get another letter saying thanks for your overpayment of £x, we reduced your term blah blah

However when I log onto banking the Agreed redemption date remains the same, as I could in theory take the reserve back and hence going back (almost) to my original repayment date.
One thing to note is that the saved interest is not added to your overpayment only the capital itself.

So the term thing is in effect a little misrepresenting the position. Its not actually committing to a new end date, just recalculating when your last payment would be made assuming you leave your monthly repayments untouched.

 

[Ace Modder]

No, I have never had a letter confirming my overpayment. I make the payment via bank xfer using the sort code and account number for mortgages and my mortgage reference account number for the payment details - it is always showing the next working day on my online account.

after my remortage to a new lower rate, my final repayment date didn't change. So it has 100% reduced my monthly payment not the term, which is what I want. This is why I'm making often, smaller payments instead of less regular larger payments.

 

[Mercenary Keyboard Warrior]

Yeah I'm reducing the monthly amount too with over-payments rather than the term. It gives you a lot more flexibility. It also eases the pain of yearly price hikes on insurance, utilities, etc.

e.g. last year I hit the over-payment cap. it reduced my monthly mortgage by £100 per month. so I now have a spare £100 a month that would normally go to the mortgage but can now go elsewhere. i'm now into year 2 of mortgage so can start overpaying again. however I have decided to invest the money instead into a couple of things. if my investment pays off then 50% of my mortgage will pay for itself every month.

These things are funny. Thats the position I have just moved from!

My issues were
1) tax, whilst I was generating a return in excess of my interest rate, its liable to tax so you need quite a lot higher rate to balance back (assuming 40% tax payer) and then that comes with risk
2) the realisation that should the worst happen my high assets would be declarable to job centre and i would get no support. They do not from what I can tell ask you if taking a mortgage holiday is an option

So I have switched to max repayments and clearing the mortgage asap. In 5 years time, hopefully, I will have to reassess a new tax minimising position, but at least at that point it would be from a position of being mortgage free, so I would probably accept the high risk needed to achieve decent returns. Or even better 5% or so base rate in 5 years would suit me dandy

 

[Mercenary Keyboard Warrior]

No, I have never had a letter confirming my overpayment. I make the payment via bank xfer using the sort code and account number for mortgages and my mortgage reference account number for the payment details - it is always showing the next working day on my online account.

after my remortage to a new lower rate, my final repayment date didn't change. So it has 100% reduced my monthly payment not the term, which is what I want. This is why I'm making often, smaller payments instead of less regular larger payments.

Ok so the £500 must be the trigger then, no totting up. Thx