A mortgage which seems too good to be true

Tiddler_2

Ian_Griffiths_Halifax wrote: »

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.

Totally agree that Yorkshire Banks owners (National Australia Bank) were the pioneers of the "Australian Mortgage" in the UK, which has been a good thing (other than the monthly thread on here asking - how do I calculate my interest charges!! lol!)

Tiddler_2

sean7 wrote: »

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?

It would be interesting to see an illustration on these deals and to find out which lenders they are using, if you have an illustration and have the facility to scan it into a pdf and upload it to a hosting site, would be useful, then the various advisers could give you their opinions

opinions4u

Tell us what rate you are being charged and what rate you are getting on the overpayment account.

Then we can know tell you if t's good value or not!

Personal view is to take a high street mortgage (if eligeable) that allows overpayments.

I like the advice "if you don't understand it steer clear".

sean7

Can't scan at the moment. unfortunately.
Product is based around a Nationwide BRT "Lifetime 75" at base + 0.98, hence currently 5.98% and I believe the numbers have been based on this staying the same for the term.

First page compares the same Nationwide product as a repayment mortgage against interest only + "Flexible Repayment Plan".
100k mortgage on standard repayment quoted as £650.65/mo over 25 years. Using the plan £105,756 (extra for fees plus £2500 5 year Accident Sickness Unemployment cover was quoted for in illustration) shows an outlay of £527.02 for interest only mortgage and £7.98 for the "Initial Mortgage Repayment Account Payment" total monthly outlay £535. Mortgage term 22.39. At the bottom of the page it quotes an interest saving of -£2,861.94, years saved 2.61, monthly outlay reduced by £115.65 or 18%. Underneath this it says "projected savings based on 3.5% indexation"

The following page shows a repayment schedule, I misunderstood this but I realise now it's laid out in black and white before me! This shows the 23 year period, quoting monthly payments that increase by 3.5% each year. I put the start figure of £535 into excel and adding 3.5% yearly increments give me the same figures as the schedule, reaching year 23 monthly payment of £1,140.36. This page also lists the benefits of the plan: allows under and overpayments, payment holidays from day one, transportable, no reliance on investment performance, guaranteed to repay mortgage.
It sounds like a clever idea, but the monthly payment is the bit I misunderstood. I'm sure it was presented as being fixed at £535, meaning that as the capital comes down each year less money goes on the mortgage interest and more on paying off the capital. However I can't see that £535 per month can pay off a £105k mortgage no matter how clever the plan is.

We were advised also that lenders often have windows once a year when they need to draw in funds and will offer overpayments with no penalty for a limited time, apparently the company will monitor this and let you know when the best time to sweep and savings into the mortgage pot if you're able to do so. This probably won't help us, but was a feature of the plan.

I've got a good lifetime deal with the woolwich currently so think I'm going to stick with it. Thanks all for the advice so far.

dwsjarcmcd

It's not clever at all, they just assume the rate stays the same for the term but the repayment increase by 3.5% p.a. Take that out and it doesn't work.

Run a mile fast from this, particularly when there is a £2500 - 5 year ASU involved, as well as all the various fees.

Ian_Griffiths_Halifax

sean7 wrote: »

(extra for fees plus £2500 5 year Accident Sickness Unemployment cover was quoted for in illustration)

There is your answer. Anybody selling one of these cannot be trusted! It is added to the mortgage and you pay it off over the term of the mortgage but you only get 5 years of protection.

If you had to claim on the policy, you wouldn't be able to make another claim until you had been back in work for 6 months.

Compare this with a monthly contribution ASU (still rubbish but better than this), at least you could cancel the premiums after you had had 12 months of benefit from the policy and then start up another policy when you had been back in work after 6 months.

dan1983_2

With my quote I have not been offered ASU and it has not been tied into the deal.
I have been offered a interest only mortgage with chelsea at 6.25% on a mortgage of 120k over 22.5 years at £628, I was then told I would need to pay a further £7 into the flexiable repayment account each month which is only a low interesr account.

Now I am looking to pay off capital as qucik as possible to gain equity in the house. I can afford to pay extra into the flexiable repayment account each month of around £100 . I have been told can do this and the money will be swept onto the mortgage at the end of the year. The interest only mortgage is only fixed for 2 years so is it worth doing this , will be this quicker than a normal repayment mortgage ?

Also I was considering setting up a high interest account to place the extra money in each month and then place it in the flexiable repayment account at the end of the year.

I think I understand the point of the interest rate must stay the same for it to work because otherwise when I remortgage in two years time I may have to pay extra on a higher interest rate and therefore less into the flexiable repayment account which will make the term of the mortgage longer.

Thankyou all for your advice ,to be honest it I think I may leave it too.

dwsjarcmcd

dan1983 wrote: »

With my quote I have not been offered ASU and it has not been tied into the deal.
I have been offered a interest only mortgage with chelsea at 6.25% on a mortgage of 120k over 22.5 years at £628, I was then told I would need to pay a further £7 into the flexiable repayment account each month which is only a low interesr account. Why would they do this?

Now I am looking to pay off capital as qucik as possible to gain equity in the house. I can afford to pay extra into the flexiable repayment account each month of around £100 . I have been told can do this and the money will be swept onto the mortgage at the end of the year. The interest only mortgage is only fixed for 2 years so is it worth doing this , will be this quicker than a normal repayment mortgage ? No even if only because there are much better rates available over 2 years, around 5.75%

Also I was considering setting up a high interest account to place the extra money in each month and then place it in the flexiable repayment account at the end of the year.

I think I understand the point of the interest rate must stay the same for it to work because otherwise when I remortgage in two years time I may have to pay extra on a higher interest rate and therefore less into the flexiable repayment account which will make the term of the mortgage longer.

Thankyou all for your advice ,to be honest it I think I may leave it too.

This is a complex product, which personally I think is better for whoever is flogging it than it is for you. Do yourself a favour, go and see another broker, who can advise you how to achieve what you are try to achieve, which is not that diffucult!