Reducing mortgage

[5831bob123]

My head is all over the place with money worries at the moment. We owe about £180k on our mortgage which equates to £700 per month in repayments. We currently have 2 years remaining on a fixed rate.

We are fortunate to have some money in savings and i was wondering whether to pay a lump sum off the mortgage, circa £20k and also pay to get out of our fixed rate now, then remortgage £160k on a 5 year fixed rate.

I am very keen to reduce our outgoings as our income only just covers our outgoings and we keep dipping into our savings just to live.

We can't reduce any other outgoings as don't have any expensive bills ie gym / loans / phones etc that could be reduced.

Hope I'm making sense! Any advice would be appreciated. TIA.

Just be careful as they will grill you about affordability. Which of course is daft as you'll be paying less than you are now. Look at early repayment fees you'll pay to get out of your current mortgage and the set up fees of your new mortgage.

If you stay with your current bank it’s a rate switch and not a full remortgage so no affordability checks.

Oh a didn't think about affordability. We were earning more the last time we remortgaged but due to covid and furlough my DH has switched industries to try to earn more but unsuccessfully so far!

If you pay off the lump sum will you be able to do so without fees? Mine is 10% overpayments a year max.
What is your current fixed rate like? I understand your worry as there has been talks out increasing mortgage interest but nothing solid so far

I’m worried about this too. We remortgaged at the beginning of this year on a fixed rate. I’m allowed to pay off up to 10% without incurring penalties which I plan to do. I will spend the next 4 years saving every spare penny so that when I remortgage I can reduce the balance down as quickly as possible. I think longer term rates have been around the 5% mark. I’m already having sleepless nights

Maybe an offset mortgage would be good for you (not that many providers so they may not be as as competitively priced) but that way you get to keep your savings "just in case" but get the advantage of the reduction of term/payment size.

Does that leave you with any savings? Or does it wipe you out? I wouldnt go down to zero savings.
Otherwise cost out the remortgage carefully. How much would you save vs the redemption cost and new mortgage fees?
I doht know how it works on a fixed rate, but we had the option to over pay, and use the excess to reduce the term (keep payments the same) or reduce the monthly repayment (keep term the same). Worth investigating what happens if you overpay on the current mortgage.
Would the new rate ge higher ir lower than currently?

@5831bob123 I would be worried about having no savings, especially as you say you dip into them to live at the moment. You need minimum 3 months living expenses for an emergency fund.

My answer would depend on how much savings you have left after doing this and how much this would reduce your outgoings. If it would do so by a significant amount, and mean you could then live and save without dipping into savings, I’d say yes.

If the margin isn’t that big, then I wouldn’t do so. Better to have the money in savings and pay out a little each month whilst you try and get a better job/income.