A mortgage which seems too good to be true

dan1983_2

At the moment I am looking to remortgage my house due to the end of my fixed rate. We have contacted a mortgage broker and they have came back to me with a Flexiable plan mortgage.
Basically you take out an interest only mortgage and pay a certain amonut of money into another account. At the end of the year all the money saved is sweeped onto the mortgage, therefore reducing its value and the interest you pay. You then increase your amount of money you put into your saving ( so you are paying the same overall cost as the year before) and carry on.

It has knocked 5 years off our mortgage and reduced our payment by £100, I think the company which has the copyright is The Hallmark Equity Plan, has anyone heard of them .

Please help, I am very confused ?:eek:

payless

Talking generally - rather than this particular product which I have not come across

net ( after tax if applicable) saving rate needs to be more than mortgage rate for this to be any better than a repayment mortgage, and seems more complex idea than an offset deal

On a normal repayment mortgage the amount of capital repaid also increases year on year

Most "normal deals" allow overpayments anyway

This type of mortgage is often sold with higher than usual ( or imo unjustified ) fees - either upfront OR as an on- going fee ,

many lenders don't accept this type of arrangement to back an interest only mortgage .

Seems a bit like the accelator , which whilst potentially could work - was often mis-sold

Looking at the site - it does not appear to be a mortagge- rather a concept

--

Dan - I don't know, but New posters who mention such products - are often laterr found to be promoting- but post as a consumer

remember -seems too good to be true ..............

Ian_Griffiths_Halifax

I can't see how it could have reduced your payments unless the term is longer than your current one, or the interest rate is lower than your current one. Both of which can be achieved with any Repayment mortgage or Interest Only mortgage with an Overpayment Facility. The big difference being that with either a Repayment Mortgage or Overpayments on an Interest Only mortgage, if you are charged daily interest the payments are taken into account immediately (or within a month) rather than this suggestion which is at the end of the year.

What rate are you being offered and what are the setup fees.

sean7

I'm considering a similar scheme, from Flexible Repayments Ltd.
Broker Fee is ~£1000, Flex. rep, ltd setup fee ~ £1000 also. Solicitor fee and lender fee applies also.
I'm being told it'll cut off 2 1/2 years and £100 / month when compared to a standard repayment mortgage so it naturally sounds attractive. Paper work says it's guaranteed to repay my mortgage also.
It leaves me wondering though - how can it work?

Ian_Griffiths_Halifax

sean7 wrote: »

I'm being told it'll cut off 2 1/2 years and £100 / month when compared to a standard repayment mortgage so it naturally sounds attractive. Paper work says it's guaranteed to repay my mortgage also.
It leaves me wondering though - how can it work?

I can see that it would work in terms of paying the mortgage off early. I just can't see how it could work any better than a mortgage with a good interest rate and the ability to make overpayments and how the payments could be less is beyond me

getmore4less

If you cannot undestand how this work then steer clear.

You should be able to do a comparison agains a regular mortgage, tracker, offset any really and have a clear idea how this is working.


Bottom line is the interest rate and total payments, post the details and someone can try and have a look.

payless

If you cannot undestand how this work then steer clear.

personally I would just go with the last 2 words

ManAtHome

If it's an "Equity Plan" sounds like interest-only mortgage and a chunk of cash into the stock market which may or may not return more than the mortgage interest rate. A bit like an Endowment Mortgage - wonder what happened to them..?

Tiddler_2

Hmmm!! Interesting that doing google searches of these companies show up just their own website or the companies house details. The first company are not even regulated by the FSA, so it seems that they have come up with this scheme which they want mortgage brokers to recommend to customers. They will obviously make money out of the brokers signing up to this scheme. Maybe that is who they are trying to target here (why not get a BDM?)

It reminds me of a scheme which used to be advertised by Yorkshire Bank I think, which was a mortgage where you increased your payments by 10% each year to save £,000's and shorten the mortgage by years.
So basically just overpaying the mortgage!

I honestly don't see how this can be better than a daily interest repayment mortgage - unless the money is invested in an investment paying a higher net interest rate than is being paid on the mortgage.

Ian_Griffiths_Halifax

Tiddler wrote: »

It reminds me of a scheme which used to be advertised by Yorkshire Bank I think, which was a mortgage where you increased your payments by 10% each year to save £,000's and shorten the mortgage by years.
So basically just overpaying the mortgage!

The Yorkshire Bank Rapid Repayment Mortgage was/is simply a Repayment Mortgage with a daily interest charge and the ability to overpay. The main problem was that you would opt to overpay by say 5% per year, but couldn't opt out of the overpayments until the anniversary of the mortgage. If, as they did, interest rates were to rise during the year, then your payments would rise and you would also be overpaying and despite people overpaying on the mortgage, they were having to remortgage to avoid the increased payments.

It did do the Country some good though, as until this mortgage was introduced I don't know of another mortgage that wasn't charged on an Annual Interest charging basis, or one that would allow Overpayments, Payment Holidays etc. It pretty much started the trend for Flexible or more Flexible mortgages.

sean7

Looking at the projected savings from the illustration it mentions they are based on 3.5% indexation. This is the bit I don't understand.
There is a repayment schedule that shows the monthly payment increasing each year, such that over the 25 year term it has doubled. I thought aha, thats how it works, increasing the payments each year as earnings go up, however when I queried this with the broker I was led to believe that the monthly payment stays fixed. I think maybe this is where I have misunderstood. It would be interesting to hear how this style product is being explained to others?