Financial wizards, little help please

OK, first off, I fully acknowledge that none of this is professional advice but can you help me with my thinking here?

Sorry for the long winded post.

I have a mortgage that has a fixed rate for two years of 1.99% it started in Dec ‘18 but my first payment was Jan ‘19, so for this exercise, post March, I will assume 9 payments.

I pay my mortgage every month and on top of that, make an extra payment of the mandatory amount plus approx £100 ( example figures, say my mortgage is £600, I pay an extra £700 each month)
I am restricted in how much extra I can pay before a fine is imposed and I’m paying the max allowed.

Question is: Rather than juggle this amount each month, would it be better add up 9 x £700, pay it now and just let the mortgage payment come out. Carry on paying each month, or slam it all in at the end of the year?

I’m assuming it would better now, to reduce the amount I have to renegotiate at the end of the year. I’m juggling this against less safety net money post redundancy.

We won’t starve either way.

Definitely pay it up front (based on the information you’ve said)

Most, if not all, mortgages are calculated on a daily balance.

So…for you, paying off £6300 in one lump sum could save up to £94 in mortgage interest.

Also, I know you said you’re not going to starve…but, should the worse happen;
You can call your mortgage company and use the overpayments to fund the normal monthly payment (think of it as a “payment holiday”)

I’m guessing this penalty/fine is for exceeding the 10% overpayments allowed per year, without incurring an Early Repayment Charge?

1 Like

Cheers Poet, yes I think I can dip into the overpayments should things go south.

Re the penalty, basically I’m allowed to pay back up to 10% anually of the total amount borrowed ( not amount outstanding), which means any overpayment has a bigger effect as the mortgage gets older.

My max fine for early complete payout is £2k but there are annual fines for creeping over the allowance, so I err just on the lower side of it.

I work as a BDM in the Mortgage Intermediary Division for one of the “big six” so get asked this every day.

As has been said, interest is calculated daily. You are normally allowed a maximum overpayment of 10% of the outstanding balance each calendar year.

I would say if you can afford to, utilise this facility now. You’d be hard pushed to get 1.99% on savings and the smart thinking is that the base rate may come down in the next few months, this will impact savings rates again.

Cheers mate. It aligns with my thinking. I’m pretty sure my contract says 10% of the original borrowed amount but I will check later when I’m home.

It might do, it differs between lender

We are about to do that with ours. Can’t find anything like the rate we are paying on our mortgage for our savings, so may as well pay down the mortgage. On the Sunday to-do list.

It might be worth checking if the overpayment limit is a monthly one or not, when we had a fixed rate we could overpay but there was a monthly limit of something like £1k, you got fined at this point. So you may not be able to make the big payment now.

But if you can I think I’d be tempted to pay the big lump now.

Yeah I checked when we first started the mortgage. No limit on lump sum, just a limit on total yearly amount.

Gonna ask you guys for your help again re this. As you know, I’m out of work and very unlikely to get any, given the current state of ‘everything’

Paying the lump sum now (or soon) won’t break us at all and we’d have approx 4 x lumps sum (after paying it) in savings locally.

With the prospect of long term zero income on my part (Mrs FP earns a small amount each math, approx 60% of the mortgage payment), would still go ahead and pay the lump sum?

Part of me says go ahead and he other part says only let out of house what I absolutely have to right now.

Now?
Absolutely not!

Not a chance in hell - my unemployment cover is due for renewal, they called me and the price hike is INSANE! (like four times what it was for the same level of cover!!!)

EDIT: Now unable to get any unemployment cover, no insurers are offering it with a reasonable deferment period, or at a suitable price

1 Like

Liquid assets will be king in the coming months. Hang on to the money.

1 Like

cheers Poet.

One other thing I forgot to add, is that when checking with mortgage company this weekend on what the lumps sum would be, I found out two things:

  1. Because I didn’t nominate at the time, the overpayments I’ve been making have come off of my total owed but not reduced the term (just the monthly amount). To me, this amounts to the same thing overall but it probably means I don’t have a ‘pot’ to dip into. I’ve changed it now to keep the monthly payments the same and have 100% of the overpayment go against the total.

  2. In the last month of my current product, I can make any amount in overpayments without any penalty, even if my next product goes with a competitor.

My thinking is, make the minimum payments for the rest of the year, then see how work shakes out and slam it all in come Dec 1st (my last mth). I take a bath on interest saved but won’t be worried about cash flow.

Just thinking out loud, it could be a terrible plan!

I salute your approach, but speaking as an accountant, I have to echo what others have said - stay liquid until this blows over, no-one will be untouched by this.

3 Likes

Thanks guys, very helpful. :+1:

For want of a better place to continue this…

Travel insurance are saying I need to speak to BA and get them to confirm my flight is cancelled. My flight is not cancelled, as FCO advise is now all but essential travel. My travel is not essential, and my insurance covers me for this. But BA are saying the only thing they can do is offer me the voucher.

But I don’t want the voucher. I want the refund from my insurance. And if I claim the voucher to validate the cancellation of my flight, would that not mean the insurance company will not pay out as I’ve received another form of compensation?

This is all so messed up. As mentioned, never had to claim on travel insurance before. I think the only insurance I’ve ever claimed on is for a dropped mobile phone and that was straightforward. ANyone got experience of how to navigate through this?

No idea!

Although most VISA / MasterCard chargebacks claim it back off the retailer on the next settlement cycle.

Broadly, the card scheme, be it Visa or MasterCard really only act as an intermediary to process the payment.

You raise the chargeback then the card company for recover those funds from the actual merchant, the training company in this case.

That may or not be the end of it depending on the terms and conditions you have signed. When this happens to a large company it is often just ignored - basically it’s more trouble than its worth to go through small claims.

A smaller business may be much more in need of that income, so may well pursue you for it.

That doesn’t sound like an insurance, which is how credit card payment protection is pitched. If the supplier can then come back to you, then it just goes around in circles?!

But your point about them recovering from the travel company is what I thought might be the case. I’d want to avoid that, given I know the owners. Hence going down travel insurance route

In theory, the insurance policy should pay out to you, negating the need for a chargeback.

I used to manage the fraud function on a large online retailer, so can really only talk about the details from that perspective.

The chargeback process isn’t as set in stone as people think; the disputed merchant can challenge the chargeback, we gave up bothering eventually.

But alas in my experience you have been offered a solution by BA so the policy will not pay out.

However BA might not challenge a chargeback, I doubt they have the capacity at the moment.