Switching from Repayment to Interest Only

barringer

Hi

My first post - be gentle with me!

I'm currently with Abbey. I've been on a variable repayment mortgage since last year while waiting for an Aussie visa. That has now come through and we are trying to sell our house in which we have a large amount of equity. (Great timing eh?!)

I am also about to go on maternity leave and, to ensure that we don't get in debt prior to the sale/move, I am considering switching to Interest only mortgage and putting the difference in a easy access savings account.

This means I can either use the savings to pay a lump sum off the mortgage every six months if it hasn't been used, or take money out of the savings for essential items.

I am very disciplined about money and have no other debts. I have investigated fixed rate deals but the fees and penalties would be too high in the short term until we emigrate. The fee to switch to interest only is £75.

I would like to ask the Forum if they think this is a sensible solution and if anyone has a better idea.

Thanks
Mrs B

Locoblade

Do Abbey do a competitive offset mortgage and if so would it cost to switch to it?

If they do that would effectively be an interest only mortgage but you could carry on paying off enough to cover the capital as well but could withdraw that capital again if you needed to.

This is what I plan to do with an FD offset mortgage, we'll be fixing for a few years unlike you but also want some flexibility on payments as we're thinking of starting a family too.

barringer

That's a good idea. But my circumstances make that a bit difficult. We have a joint HSBC account (because it's easy to transfer to Australia) but the mortgage is mine alone and comes from my personal current account.

I know I could change but to keep it simple, I would be paying the mortgage from my maternity pay, which would cover the interest only payment. Then my husband's salary is considered disposable income after the difference in mortgage is stored in savings - I'd set up a instant account transfer.

So yes, really, what I'm doing is a DIY offset mortgage but with a small loss in interest paid off. I can bear the small loss for the sake of convenience and the volatility of the housing market!

Thanks
Mrs B

Locoblade

Not sure how the Abbey ones work but with First Direct I don't think you need to move so your main bank account is with them, from what I gathered on the phone you really only need the offset current account sufficiently in credit to pay the mortgage each month. If you could do that with Abbey, you could continue banking with your current bank, the Abbey offset current account would effectively become your savings/mortgage account and all you'd need to do is transfer money from your existing current account into the Abbey one in time to pay the mortgage, plus keep topping it up further with your hubby's income to offset the capital repayments.

Im by no means an expert though and I may have got that wrong but worth investigating, because it may not be any less flexible than your plan to put it in a seperate savings account