Repayment v Interest only + lump sum

Sean66

We are looking for a mortgage for £192k on a 5yr fixed. I have trying to compare the Post office mortgage at 6.02%:

Repayment - £1253 per month
Interest only - £974

I hadn't even considered an interest only untill my wife mentioned it. By the end of the 5yr fixed I will have received a £50k guaranteed lump sum which I could put into the house, we are looking to be in this house long term.

Should I:

1. Just go repayment.
2. Go interest only, then pay a lump at the 5yr point.

I could put away the difference each month or over pay on the interest only (can you do that?) to further reduce the outstanding balance.

Would my lump sum be considered as a repayment vehicle?

Or am I just missing something completely.

Just want to get it straight in my head before I see a mortgage advisor.

Apologies if its just the ramblings of a mad man.

Trying_to_be_good

1. Your lump sum is only £50k against borrowing of £192k, leaving a shortfall of £142k. A lot of lenders are now only lending on interest only terms if there is an investment/repayment vehicle to cover the whole loan.

2. Some mortgages allow overpayments without penalty, others charge a penalty - you need to check this out with individual deals.

3. The ONLY way to know a mortgage will be paid off at the end of the term is to go with repayment.

Have you checked your Loan to Value ratio is OK?

If you can afford the repayment mortgage, I'd go with that rather than interest-only.

Matty0682

Sean66 wrote: »

We are looking for a mortgage for £192k on a 5yr fixed. I have trying to compare the Post office mortgage at 6.02%:

Repayment - £1253 per month
Interest only - £974

I hadn't even considered an interest only untill my wife mentioned it. By the end of the 5yr fixed I will have received a £50k guaranteed lump sum which I could put into the house, we are looking to be in this house long term.

Should I:

1. Just go repayment.
2. Go interest only, then pay a lump at the 5yr point.

I could put away the difference each month or over pay on the interest only (can you do that?) to further reduce the outstanding balance.

Would my lump sum be considered as a repayment vehicle?

Or am I just missing something completely.

Just want to get it straight in my head before I see a mortgage advisor.

Apologies if its just the ramblings of a mad man.

You mention that if you go interest only, "I could put away the difference each month". My advise to anyone with a mortgage, if you have spare savings, use it to put towards your mortgage. This is the most efficient use of your funds. With the mortgage you mention above, you are being charged 6% on yr remaining balance.......so with current interest rates you will achieve no where near this on yr savings. So pay the difference into the mortgage, be it via repayment, or over-paying on an interest only mortgage.

Therefore I would recommend a repayment mortgage, but make sure you have the option to over pay. For instance with my mortgage, I can over-pay £500 per month plus an additional 10% of the remaining balance at the end of the year. So if you have a £50k lump sump coming yr way, you need to make sure yr mortgage allows repayments of this amount, otherwise you will be hit with a Early Repayment Charge (this will be more than 10% of the balance)

A useful tool for mortgage available, have a look at the FSA website:
http://www.fsa.gov.uk/tables/bespoke/Mortgages

You enter all your details, value of house, LTV etc, and it will give you all the mortgages available for yr given LTV. You can also sort by initial rate and tie-in period to look at the best deals for you.

Thanks

Sean66

Thankyou for the replies. Its what I knew already really, but you know whats it like when you have that seed of doubt planted, especially when talking about that sort of money.
Back to the mortgage advisor on friday, so fingers crossed.

maveli

I just changed my repayment with HSBC tracker to interest only. I am lucky to be on a BoE+0.23. I am going to put the remaining (around £450/month) to an ISA which will give more than 0.73%. HSBC didn't charge any administration fee for the chanfe and considered last year valuation to calculate the LTV