A couple of weeks ago Patrick and Clare called Enhanced Wealth Ltd for some re-mortgage advice.
They told us that they had been thinking about moving house and considered “porting” their existing mortgage product, as that’s what their friends did to avoid early repayment charges. Alternatively, they thought they might stay in their current home and take out a further advance to enable them to build an extension.
The couple went on to tell us that they currently had a £200,000 loan on a fixed rate (4.29%) mortgage with 1 year left until their fixed rate product expired. When they checked their original paperwork they had found that the Early Repayment Charge was 5% of the original loan, £10,000.
When Pat had called their mortgage lender about the idea of moving and porting the loan to avoid the Early Repayment Charges, or taking out a further advance and staying put, they were told that their loan was not portable and no further advances were available as the “ lending book was closed”. Pat said that he had done some research and told us that the work that he was proposing was within permitted development and because of his connections in the building trade it would only cost him £40K to add £90K of value.
Pat said that they did not take advice on their mortgage and did not know the right questions to ask at the time.
In addition Clare said that she was due to have their second child in 5 months, and would then be taking a year off work, so there would be a period of reduced family income.
We told the couple that this was clearly a case where a second mortgage could save the day.
Our advice was:
- Leave the first mortgage in place
- Take out a second mortgage, over the longest term possible to keep payments as low as possible during the period that Clare was not working
- Choose a product without an early repayment charge, so that in 12 months we could re-mortgage the current main mortgage and second mortgage into one mortgage at a rate that today would be lower than either their existing first mortgage or the new second mortgage.
Pat and Clare said that they liked the idea of our proposal because after taking into consideration the stamp duty and redemption cost saving, plus the added value of extending the house; the family’s wealth would be enhanced considerably in all respects.
They duly went ahead and the case completed in 4 weeks.