My fixed term 3 year mortgage is due to end next year, and we have a healthy chunk in the bank. When the term comes up for renewal will i be able to pay off a chunk of my mortgage without any financial penalties.

We currently have a mortgage for around £140k, but are hoping to have £30k in savings by next year – so will any of that go towards paying off interest, or will it all come off the actual loan at renewal?

Thanks.

Ask your lender!

You may be able to overpay your current mortgage right now (I think mine allows me to over pay 10% of the outstanding each year) without incurring penalties.

You might be better off going with a new lender at the end of your 3 year deal (rather than renewing) and you can pay as much off as you like when you renegotiate a mortgage..

depends what you mean by renewal. Usually, fixed term mortgages just become variable rate mortgages, with the same term and conditions. So not really a renewal of a loan, just a continuation but with a different interest rate. If your terms and conditions state that you have an “early redemption charge”, then you could get hit with a fee for paying off 30k early.
Best thing is to ring up the mortgage company and ask them.

am i over simplifying? wouldnt you just , when you renew you take out a mortgage for 110k ….. your house value – equity – 30k = new mortgage ?

Doesn’t it depend on what you signed up to? My own one takes overpayments off the capital and reduces the interest repayments appropriately.

We can’t overpay. We know that already.

OK – I was under the assumption at the end of the fixed term, that unless we wished to move the mortgage then it would roll over onto a variable rate. It’s likely we’d be going with another lender anyway, as Santander were the one of the few to offer a 10% deposit mortgage when we bought. So it’s likely we’ll be in a better position regarding products when we add our savings into the mix.

am i over simplifying? wouldnt you just , when you renew you take out a mortgage for 110k ….. your house value – equity – 30k = new mortgage ?

You are because (I assume) he is in the middle of a mortgage and just coming to the end of the fixed term. He isn’t remortgaging, he is just going onto their standard product.

Why not renew? Bung in the £30k and negotiate another good deal – if you are likely to have more lump sums in the future look at one that lets you make penalty-free overpayments (like the One Account).

am i over simplifying? wouldnt you just , when you renew you take out a mortgage for 110k ….. your house value – equity – 30k = new mortgage ?

That’s what I thought. But like you, thought I may be over simplifying.

I don’t think you quite understand how the repayments work. The extra money you pay off will come off the capital which will bring the interest charges down for the remaining period of the loan (subject to there not being early redemption charges).

In principle when you pay the mortgage off each month the money you pay in will first cover the interest charges from the previous month and then whatever is left reduces the outstanding capital. the minimum repayment stipulated by the mortgage company is calculated by ensuring that a consistent payment will clear the capital and interest charges by the end of the mortgage.

Why not renew? Bung in the £30k and negotiate another good deal – if you are likely to have more lump sums in the future look at one that lets you make penalty-free overpayments (like the One Account).

This is what we would like to do. So I guess I’ll need to check with my lender if there’s any penalties for wanting to renew my mortgage with another lender? If there’s not, then simply move the mortgage and chuck the £30k in?

OK, so it looks like we’ll need to renew onto a different product and/or lender.

Now’s your opportunity to shop around.

Check your T&Cs but unless your current provider is offering you the best deal (unlikely) shop around as your effectivly bargaining with a higher LTV so likely to get a better deal over a shorter period than if you simply overpay with your 30k.

surely when you three years are up you’ll shop around and get another deal?

In doing so you pay off the 30k, so your new mortgage is 110k.

As mentioned above, you could perhaps overpay some before the three years are up? If so you’ll save a little of the interest you would have otherwise paid.

Edit: wow, i must type slow.

when the existing term comes to an end go get another mortgage. You will be given a settlement fee on your current deal, lets pretend its £100,000, you then borrow £70,000 and top up the rest with the savings.

solicitors/good financial adviser will sort it all out

So I guess I’ll need to check with my lender if there’s any penalties for wanting to renew my mortgage with another lender? If there’s not, then simply move the mortgage and chuck the £30k in?

Depends on the product – if (for example) it was an initial rate lower than the normal rate at the time you will be tied in for a longer term. If it was higher (but fixed for your security) then the tied in term may well be the same as the fixed rate term.

I am surprised you don’t know how long your mortgage tied you in for though 😯

1. At end of fixed term, decide if variable rate (which you’ll flip on to) is cheaper than any other fixed rate you can get (from same or new lender).

2. If you stay on variable rate, ask current lender what costs you will incur for paying down £30k. Likely will be some admin costs, but no “penalties”.

3. Remortgage (either with same or new lender). The “new” mortgage pays off the old mortgage. So, if you remortgage for £110k, you need to fund £30k to pay off the balance. You then have a debt of £110k on whatever terms you took it out on.

Of course, it might be more efficient simply to overpay on the debt of £140k (e.g. to shorten term), and make your £30k do something else. Depends on your circs.

I am surprised you don’t know how long your mortgage tied you in for though

3 year fixed, rolling onto variable – that was the product we took. However, my experiences with lenders means they always sneak hidden charges in one way or another.

Thanks for the other replies, kind of clarifies what I was thinking. Cheers.

No that still doesn’t say how long you are tied for – it simply says when you exit the initial rate.

It will be on the documents you signed – or ring them up and I am sure thye will be able to tell you.

3 year fixed, rolling onto variable – that was the product we took. However, my experiences with lenders means they always sneak hidden charges in one way or another.

having just changed mortgage providers…
I had been on a 2 year fixed, which ended and I dropped onto the variable rate for a while. I’ve just taken another fixed term with another lender. There were no penalties from the previous lender as I had seen out my agreed term. There may however be admin fees associated with setting up a new mortgage, depends what you get.

As has been said – depends on the T+C of the mortgage.

Our mortgage was fixed for 2 years, with a ‘cap’ on overpayments (5 or 10%).
Now it’s on the variable rate, with the cap removed. Thereofre I suggest you wire me the money, I’ll overpay my mortgage, and let you know how it goes….

DrP

Thereofre I suggest you wire me the money

If you post your account details up here I’ll get that sorted for you 😉