End of fixed rate with NR

JD642

Hi,

Im new to this site but am looking for some help. Myself and my partner took out our mortgage with northern rock 18 months ago we have just come to the end of our fixed rate and have gone onto the SVR. We have been quite lucky as we were fixed at 4.9 and the SVR is nw 4.79 we should save about £25 a month, not a huge amount but every little helps. My question really is if we should change from our interest only mortgage to a repayment one. NR have said this will cost about £75 for an admin fee but other than that it is a pretty straight forward process. This will be about £750 a month as apposed to £600 for the interest only. We could afford this but obviously it will make things a bit tight, I am wondering if it is actually worth doing. I think we are prob in about 20,000 negative equity at present which isnt too much of a problem as we arent planning on moving any time soon. I hope the housing market will pick up again in the next few years and will put us back on an even footing. So is it worth struggling to pay the extra or just saving the moneny to spend on other things instead? I am aware this will mean when we do eventually sell we will have made less on the house, but we are both only in our 20's so have a good few mortgage years ahead of us, will it make a difference in the long run as we will prob want to move onto a bigger house at some point in the future. Or am i missing an opportunity to reduce my mortgage early on? Does anyone know how much of your monthly payments actually come off of the capital of your house?

Sorry for the long post but any help would be greatfully appreciated.

beecher

I would urge you strong to start repaying the capital on the mortgage. Otherwise how are you ever going to pay it off? £20,000 in negative equity is a problem in my eyes - what are you going to do when interest rates start increasing again? I'm not sure if you understand the gravity of the problem. Say you're in £40,000 negative equity by the time you come to sell - you'll owe that, and have no deposit for your next purchase.

Rather than thinking of spending on other things, I think you need to have a repayment mortgage and overpay in order to try to get out of this situation. Debt Free Wannabee forum will help you shave spending in other areas, ie Sky/mobile phones/gym membership.

JD642

Thanks that is helpful, but obviously I would not let it get to a place where we were in such a financial problem I was just looking for some advise on how much we would gain paying off the mortgage seen as we were unlikely to pay enough to get us back into the black as it were, as apposed to using that money for other things. By things i mean sensible stuff not blowing it all on rubbish.

Thanks for your advise about the forum but we do not have any of those things and I am very careful with energy providers car insurance etc and always look for the best deals.

beecher

The thing is, you are £20,000 in negative equity and have no repayment vehicle - to my mind you are in financial difficulty. You need a repayment vehicle and to overpay to try to dig yourself out of the hole. How are you going to cope when base rates rise to 5% or more again? You can't rely on the housing market picking up again, particularly if you want to trade up.

You seem to be saying that your in a financial hole anyway, so what's the point in trying to dig your way out of it. I don't really understand that way of thinking at all.

Can you rent out a room or get an extra job?

JD642

Again thanks for this information but i really just wanted some advise about my original question not to get a load of scare mongering. I am on this site because I am considering my options not just hoping the market will pick up.

Can anyone else answer how much of your monthly mortgage payments reduce the actual balance of your loan. I have heard one in 3 payments actually comes off the capital. Is this true?

beecher

Sorry you think I'm scaremongering - just urging you to look at this problem seriously.

You say that interest only in £600, repayment is £750 therefore £150 would be coming off the capital. You pay more interest early on in a repayment mortgage, and more of the capital later on.

There are online calculators which would help you work it out.

http://new.egg.com/visitor/0,2388,3_54988--View_1028,00.html

would be a good start as it shows you the curve of capital repayments over the term.