Page last updated at 17:05 GMT, Tuesday, 17 February 2009

Your Mortgage Questions Answered

Pat Bunton
Paying down mortgages is a good idea as a general rule, Mr Bunton says.
Hundreds of people visited the Money Matters Roadshow in Manchester - looking for financial guidance and information.

One of the experts on hand, Pat Bunton from London & County Mortgages, has answered some of your questions.

Click on a question to see the answer to that particular one, or scroll down the page to read them all.

Q. I have fixed interest rate mortgage and the mortgage company said they could not do anything to my existing mortgage unless I pay the early repayment charges of 12,000. I am running out of savings to pay my mortgage in 4 months time. I am unemployed. What are other solutions out there for me?Sarah Wills, London

You should really talk to your lender now and see if there is any way that they can help you, for example with a payment holiday. The worst thing you can do is to simply sit there quietly and burn through your resources. Lenders are looking to be helpful to borrowers and are being encouraged to do so by the government. In addition, if you have any other debts or borrowings you may also decide that an hours chat with an adviser at your local Citizens Advice Bureau would be time well spent.

Q. We sold our mortgage-free home at the top of the market. We now have hundreds of thousands in savings, but also pay rent of 14,000 a year. We hope to build our own home in a couple of years. How do we protect our capital against a resurgence of inflation so we can pay for materials and labour in a couple of years time or, if things stay deflationary, how do we assure an income to pay the rent in the meantime rather than using capital? Colin MacKinnon, Strathaven, Scotland

Right now institutions are looking to attract retail savings so there is every chance that you will be able to earn a rate of interest that is at, or higher than the inflation rate. The key here is to shop around for the best rate you can get and then to periodically check to ensure it does not become less competitive as time goes by. With regards to making rental payments, the only way to do this without running down your savings is to fund your mortgage payments via earned income so that your savings are left untouched.

Q. My investments are not doing well at all - in fact they have gone down in value - but exit fees are high. I still pay a mortgage on my house. With the investments doing badly is it better to suffer your loss, take the money out and pay the mortgage, or should one stay on and hope the markets will recover in the next year or so? Shahina Ghazanfar, Richmond

Equity markets have been performing very poorly and it is entirely possible that this will continue as the economic outlook for worldwide economies is not great. Having said that, if sentiment improves and the markets believe the recessionary tide is being stemmed then it may be that equities will perform better in future.

The point is that no one can guarantee future performance and investing in stocks and shares carries a risk - they can and do go down, as well as up.

There is no magic answer to your question and only the power of hindsight will show what was the right thing to do, but if you are losing sleep over this and can't afford for further falls you may want to consider paying down the mortgage. Of course investing in stocks and shares is a long term thing to do, but in recent years even returns over the long term haven't been great.

Q. I currently have a 160,000 mortgage on a one bed property but want to upsize. In the current economic situation do you think I should sell at the price I brought (180,000) and rent. Or stay put and keep my tracker mortgage deal and then move? Sarah Smith, Surrey

If you sell the property and rent it out you will release any equity, which you will then need to use as a down payment on your next home. It may be that house prices will fall a little further so waiting and watching right now is not the daftest thing in the world.

Having said that, there are some really good value deals to be done in today's market as sellers have far more realistic expectations over the prices they are likely to achieve. In a sense, what you are wanting to do is to try and realise the best sale price on your property and then negotiate hard the best price you can on a new one.

Ultimately as house prices recover and hopefully rise (in future) the better the property (value, location, quality etc.) the more you are likely to benefit from any upturn.

Q. Is it worth re-mortgaging in my current circumstances? I am five years into a ten year fixed rate mortgage of 124,000 at 6.49%. The mortgage ends in 2023 and the property value is currently around 250,000. The monthly repayments are 1,150. I would have to pay a 5% early payment charge and a 50% claw back of cash back I received when I took the mortgage out, totalling around 14,000 in charges.

As interest rates are so low, I wondered whether it was worth considering adding my 30,000 burden of personal debt to a re-mortgage, currently costing 550 a month to maintain. If I could get a low rate of interest my monthly repayments would be more manageable.

My credit rating is excellent, but I am struggling to pay off anything but the minimum payments on my debt, even though they are on 0% or very low rates on credit cards. I have done a budget and cut down spending where possible, so if a re-mortgage is not such a good idea, please could you suggest alternative strategies? Dawn Handforth, Preston

Charges of 14,000 represents 5.60% of the mortgage amount (14,000/250,000 X 100). So you have 5 years left of your deal and that equates to 1.12% per year. So, simplistically, if you could get a fixed rate for 5 years elsewhere at a rate of 5.37% or below then you would be in a break even scenario. Factor in any fees you might have in a similar way, but at the moment you can get a 5-year-fixed rate from about 4.59% so that works.

With regards to consolidating other borrowings, you may well be able to do that as you have plenty of equity, subject to your income being sufficient for the lender and whilst doing that means you will pay more over the long term, your payments now could fall dramatically.

You are doing the right thing by getting your other borrowings on to the lowest rate possible and if that is 0% it is clearly in your interests to leave that where it is, as opposed to adding it on to a mortgage at a higher rate.

Q. I am considering buying the freehold on my flat. Is now a good time to be considering this given the fall in house prices and likely cost of purchase? Also, I am on a fixed rate mortgage with a 5.3% interest rate and have surplus income and was wondering whether this would be put to best use overpaying my mortgage (the agreement allows 500 per month) or looking to increase my savings (I currently have a years allowance in an Isa or could put more in my 9-month old sons Child Trust Fund). Neil, London

As a general rule, paying down debt is always a good idea, and I assume that you are a taxpayer so unless you can earn more that 5.3% net then paying down debt down is the financially soundest option. It is always a good idea to have a safety buffer of cash savings and a tax free cash Isa is a good option for that. Child trust funds are good, but the cash is tied up so should only really be used for long terms savings that will not need to be accessed until your child has grown up.

Most flats are leasehold and that is what lenders will want to see for mortgage purposes, however it may still be worth you buying the freehold. This is really something that you should discuss with your solicitor.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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