First Direct Tracker +0.49% or +0.79% - Which to choose?

lisyloo

Hi,

You will have to pay the same with any mortgage given the same amount and same repayment option.
The only differences are fees.
and the fact that with some First Direct mortgages you can offset your savings which can reduce interest costs a bit if you are a a taxpayer.

I'm not sure that the 0.49% option is still available.
I think it''s been pulled.

But apart from the offset factor and fees, a repayment mortgage in one place will be pretty much the same as a repayment mortgage somewhere else.

susie51

We need to remortgage as our fix runs out dec 31

My point was: is this an "interest only" tracker ?

I told the FD advisor we wanted a repayment mortgage , after lots of discussion between the 3 trackers they had, we ended up applying for this +.49% First Direct tracker 8th october, and now the paperwork has arrived, it says it's interest only and for a mortgage of £122,699 gives monthly payments we need to pay at £510.55 pcm (at current rate 4.99%) x 204 payments over 17years.
But then says you will still owe £122699 at the end of the mortgage term- you will need to make separate arrangement to repay this!?

Wouldnt this amount to us paying average of £601 on top of interest each month for the rest of the 17 year term? (in my simpleton calculations)

We are used to monthly payments of apprx £920, but £601+£510 would total £1111 a month.

Have i completely misunderstood somewhere or are my calculatons a GCSE failure!

I asked the FD advisor for a repayment mortgage - Im now wondering if this is right for us...

lisyloo

My point was: is this an "interest only" tracker ?
I told the FD advisor we wanted a repayment mortgage

You can easily turn this into a repayment mortgage by volutarily paying the extra.
Set up a DD or standing order so that it happens automatically if you like.
The only difference is that you don't HAVE to pay it.
So if you lost your job that might be helpful for a few months.

Wouldnt this amount to us paying average of £601 on top of interest each month for the rest of the 17 year term? (in my simpleton calculations)

No, but I understand where you are coming from.
If you pay interest only your capital is the same, so interest remains the same.
If you makes repayments, then capital reduced, this means that interest is REDUCED monthly.

Here is a graph of what happens to capital to demonstrate.

Each month you pay a greater repayment and LESS interest.
To cut a long story short it's cleverly caluclated so that your payment remains the same.

We are used to monthly payments of apprx £920, but £601+£510 would total £1111 a month.

No, interest is not constant, it goes down.

Have i completely misunderstood somewhere or are my calculatons a GCSE failure!

Your calculations are based on a flawed assumption (that interest is constant which it isn't on a decreasing loan) but it's probably more complicated than GCSE.

I asked the FD advisor for a repayment mortgage - Im now wondering if this is right for us...

You can make it a normal repayment mortgage, just by making the relevant overpayments.
This has EXTRA features.
If you are totally baffled then you could go with a repayment mortgaeg, but you'll get more flexibility if you try to understand how it works and I hope we can help.

xeena

Use the calculator on their website to figure how much the repayments would be IF it were a repayment mortgage. Then if you top your interest only payments up to this amount, it will work out the same. But you have the flexibility to pay more or less off the "repayment" bit if you want to.

lisyloo

Here's the graph.
I don't want to get too complicated but initially you pay very little reapyment and mostly interest.
At the end you pay mainly repayment and virtually no interest.
It's not a straight line because it's accelerates, hence the curve.
But don't worry about it.
The main thing is that interest REDUCES and capital payment INCREASE.

http://www.greaterlondonmortgages.com/glm_preview/repayment_methods.html

boots_babe

First Direct treat all of their trackers as interest only BUT you can easily turn this into effectively a repayment mortgage, by paying the extra amount.

You can actually pay any amount per month that you like, provided you pay at least the interest amount. So it is very flexible. Additionally, anything that you pay over and above the interest only amount, is treated as an overpayment, which you can then borrow back at any time in the future if you need it.

All in all it's a really good flexible option - you can treat as interest only when needed, treat as full repayment, and also anything in between.

lisyloo

BTW - If you don't amke payments on a repayment mortgage there will be all sorts of consequences - bad marks on your credit report which last SIX years, difficultly then getting credit for SIX years.
If you only pay interest on and interst-only mortgage then NOTHING happens.

This can be a useful featuer to have .
It could tide you over whilst between jobs.

But it only works for disciplined people.
For the undisciplined there is the potential to underpay and fritter the money away (on TVs, shoes, ipods etc.).
Long term that's bad.

susie51

thanks everyone. i think i get it now. i was mainly worried that i wanted to make sure we got a remortgage that will definitely be paid off in 17 years or sooner if poss.

but i can see that if i pay off as much capital as i can in the early days with this tracker, i'll be paying less in the long run, interest-wise

I usually go for a fix, nice and simple, but thought i'd maybe ride it out a couple of years to get a better fixed rate, (probably like a million other people) which means now weighing up the £1100 arrangement/valuation/closure fees being worth it of if only stick on the tracker for a couple of years.......