Meet Clare who works in marketing and lives in Birmingham.
Clare has recently found a two-bedroom apartment in the centre of Birmingham that she would like to buy. She’s made an offer of £230,000 which has been accepted.
Clare has saved up over the past 6 years and now has £25,000 towards her deposit. She goes and speaks to her bank who offer her a mortgage of £207,000, which is 90% of the value of her home.
Clare puts £23,000 from her savings towards buying the house which covers the remaining 10% that the bank doesn’t lend. This leaves her with £2,000 for legal fees and money for the house-warming party.
Clares's situation
The best available interest rate that Clare can get from her bank with a 90% mortgage is 3.09%, which is fixed for a period of 5 years. At the end of the 5 years most people re-mortgage and get a better rate as they have paid their mortgage down a bit and their house price might have increased too.
With her 3.09% interest rate Clare would have monthly repayments of £991. This repayment is made up of two things: the interest on the loan and the repayment of a portion of the loan each month.
Over the course of the 5 years half the money Clare pays will be in interest and half will be repaying the loan. That means her mortgage will have reduced to £177,000 in five years time. She will have also paid interest of £30,000 to the bank.
How can Tembo save Clare money?
Clare needs to borrow £207,000 to buy her home.
If Clare was to get some of this amount from her family, then she could save thousands of pounds in interest over 5 years. She would also own more of her home when she comes to re-mortgage. Win win.
The problem is Clare’s family don’t just have a pile of cash ready to hand over. But they do own their own home. Through Tembo, Clare’s family could arrange for a small retirement interest only mortgage against their home. They could arrange this through Tembo and take out £34,500 and put it towards Clare’s home purchase.
This means that Clare’s mortgage is now only 75% of the value of the home, so the interest rates are much lower at around 1.75%.
Interest paid over 5 year fixed term
Over the next five years Clare will pay the same monthly amount of £991. But at the end of the five years, she will have only paid £18,500 in interest, including the interest on her family’s interest only mortgage. That is a pure saving in interest payments of £11,500 compared to the best alternative.
Having paid down some mortgage and hopefully with a little increase in the value of her home Clare could then opt to re-mortgage. She might also decide to return the gift of £32,500 from her family too. But by using Tembo, Clare will own £11,500 more of her home than if she went with her bank alone.
More money for Clare, less money for the bank.
