Hello,

I know that there are many people in a similiar situation to myself however was just after some feedback about the issue i have. Myself and boyfriend purchased a house in Feb 08 for £142500, we had a deposit of £14250 leaving a mortgage of £128250. We have taken the mortgage out over 20 years on a repayment basis, and have a tracker which is 0.04 above the base rate, so currently 4.54% (around £820/month). This is fine at present and we can afford this with our other outgoings, however i am concerned that when our deal ends (Feb 10) and it reverts to the SVR which will equate to around (£1050/month) and we try to remortgage our property will be in negative equity (predictions that our house could halve in value!) and then unable to obtain a mortgage so will end up paying SVR or being reposessed?

Please can you anyone help or advise, don't know whether to start paying an extra £300 a month on mortgage if i can or what?

Thanks for your time

Sarah

Hi

You have a good deal with your present mortgage

IF THERE ARE NO PENALTIES for doing so then it is ALWAYS a good idea in these times to pay off debt if you can - contact your mortgage provider and check your paperwork

When your deal ends check for continuing penalties - and shop around for a new deal if you can

but bear in mind that you may be in negative equity

As I said the more debt you pay off the easier [relatively] life will be in 2010

As a last resort in 2010 ask your mortgage provider if you can convert to "interest only" for a time to get yourselves back on an even keel!

amateurmoney: IF THERE ARE NO PENALTIES for doing so then it is ALWAYS a good idea in these times to pay off debt if you can

I wouldn't necessarily agree with that. Sarah's borrowed money at 4.54% until Feb 2010. If she went on interest only now she could put the "saved" average capital of £339 in a better place each month until Jan 2010.

Sarah, you're obviously very responsible as you are thinking so far ahead. If you can afford an extra £300 a month I'd stick it into something else along with your capital, so you're in control of your own money (but that's me and may not suit everybody). You'll obviously understand that your capital (debt) needs to be cleared and while it's not being cleared then it's costing you money in interest. I'm suggesting wait until the rate increases then clear it so you're borrowing more while the rate is so low. The first month you "miss" paying capital you'll pay interest on an extra say £339 so it would cost you about £1.28 more than if you'd cleared it (339 x 0.0454 / 12 = £1.28). Feb 2010 is 15 months away so if you go on interest only now it will cost you about £20 (or less) extra for having held onto your own money.

Daft as it may sound you could even try premium bonds until your rate goes up (you might win enough to clear my mortgage as well)!

Trackers will be great now for quite a while so reap the benefits whil you can.

Another way to look at it is if you stayed on interest only and rates went up to say 8% (that's not gonna happen for a long long time), then you wouldn't be paying out much more than you are now.

Why do you think your house will "halve in value"? Is it new-build? If so is it an apartment?

Hello,

many thanks for both responses. My ultimate concern is that come Feb 2010 my houses value would have reduced significantly and then make it hard for me to remortgage. If by Feb 2010 my debt outstanding is £121000 and my house is only worth £115000 then i am in effect in £6000 negative equity? is that right, equally if we break even, i can't imagine a 100% mortgage will be easy to come by in feb 2010.

Repo-Stopper - sorry if i sound thick, but i am all new to this money malarky - what you suggest is actually swapping to interest only (tell me how you worked out my capital being £339???) and with the money we would have used to pay the mortgage put into a high interest account? or premium bonds? Plus putting any extra i can in this savings account - so in effect if i was putting £500 (capital) and £300 (extra) a month that would be £800 and over 14 months i would have a lump sum of £11200 plus any interest earnt on that. Would i then pay this back in a lump sum prior to remortgageing to lower the LTV? - feel a bit confuzzled now, hopefully you can put it into laman's terms for me!

I have been on a few of these mortgage calc and house price index things that predict my house falling to £97000 in two years - its a semi detached 3 bed home, not new build!

any more tips/suggestion would be gratefully receievd!

Cheers

First piece of advice - don't stress. the fact that your thinking about Feb 2010 means that you are probably 10 times more sensible than the halfwits that are currently on 125% mortgages and wondering why they can't add to their 50K credit card debts. Relative to them your bank probably thinks that you are an angel in disguise.

There is no way you should change you mortage at the moment as you have a very good deal. I would also not pay off any extra at the moment (rare that I should offer that advice, but times are special!). I suggest that you take everythign you can save every month and put it into a really good regular savers account, the type that are currently paying 7-10%!

Keep doing this and by feb 2010 you'll have a nice little nest egg. At that point if the world is still mad and you can't get a decent mortgage deal and are forced to take a SVR deal, then at least you'll have a lump sum to help pay off the monthly extra for a year or two, until things get bac to normal and you cen get a fixed rate deal again.

I've been in banking for 20 years and normally paying off debt is absolutley the smartest hting anyon ecan do. BUT NOT NOW. For the short term the smartest thing anyone can do is STAY LIQUID. That means paying the bills every month, and if need be no more. Put everything extra into savings, so that if in the future your monthly outgoings go up, you can still pay them and stay liquid.

Good luck

Sarah, sorry for delayed response been away past couple of weeks..

Firstly, I agree with LoanInsider "don't stress" too much as you're in a much healthier position than many. Still good to keep your finger on the pulse though - so well done you..

You're in this for the long term and have only just started. This dip will be tough over the next 3 or 4 years but you'll be ok in 20 years time I'm sure. Consider how much it would cost to rent your home - a 3 bed semi value £130-£140k gotta be at least £600 per month probably closer to £700 depending on where you live. So you'd be throwing that kind of money away each month if renting, thats' why I'm suggesting pay interest only while you're on a great rate (so long as you put that capital equivalent somewhere and don't blow it).

Sorry if the maths confused you. To calculate interest only from the figures you gave, I took the full borrowed amount and multiplied by interest rate. 128250 x 0.0454 = 5822.55 per year interest (divide by 12 to get £485.21 per month interest).

You said your payments were approx £820pm so 820 - 485 = 335 capital (give or take a fiver if I rounded up).

I believe too many people cripple themselves paying off big chunks of capital which to me is senseless in times of such low interest rates PROVIDED you have a better home or action plan for the equivalent money. In summary if you're good at looking after your money (as you would seem to be) keep it in YOUR pocket as long as you can!

If anything alse isn't clear just update this thread and I'll be quicker to respond. Good Luck RS

ps - I stress what I've said in this thread is my own opinion and should not be read as any means of financial advice as I am not qualified to give such advice.