Mortgage - Interest Only + lump sum payments

jstallan

Hi,
Managed to find a buyer for our house and got an offer accepted on a property we wish to buy, so now it's time to look at mortgages seriously. Currently looking to borrow £120k against a property of £295k and salary multiples for £120k shouldn't be a problem. Hopefully a 10 yr fix.

Type of mortgage we are looking for is 25 year period and interest only with the view of making annual lump payments to reduce the amount. I can afford monthly repayments of £900-£1000 per month without a problem, but would prefer not to. Instead, my plan was to save the monthly difference (I am very disciplined in this) and then make period lump sum payments - this would allow a 'rainy day' fund should there need to be work required on the property.

Also, by selecting interest only, should I lose my job, then there is a smaller payment to meet every month to retain the house, plus, government benefit also covers just the interest element of the mortgage (unless I'm wrong).

Comments and suggestion would be appreciated.

Cheers.....

unite79

You will be limited in your choice if a pure inteerst only mortgage is required, you may also wish to examine off set mortgages, thus benefiting form the interest on your savings etc..

In principle though, as you suggest you are discplined it aint stupid.

But for someone who is adventurous, in going interest only, and relying on overpayments, a 10 year fixed is somewhat strange.

dimbo61

The other problem you will have is that lenders are not keen to give Interest Only mortgages anymore !
You need a repayment vehicle and you cant just say we will overpay with lump sum payments.
The offset mortgages are very good and you could take a 25 year term and just pump your savings into the offset account until you have enough to clear the mortgage.
I have a 5 year fixed offset with YBS ( very happy )

figgles

Highly recommend the Virgin One account although it's got it's share of people who dont like it.

I've had one for 10 years, had ups and downs in salary and have done very well financially out of it (i.e. saved a LOT of money in interest payments when I was overpaying), and on the bad months as long as you dont go above your "facility" then it doesnt matter.

I know other mortgages work differently but the VO account works by basically giving you an overdraft at mortgage interest rates (currently 3.65% for the lowest LTV) and it's a great indicator as to how well you are doing each month as you see your income, outgoings and how much extra you've paid off each month.

afsha

Just remember most lenders will not allow you to pay more than 10 % of loan. I applied with the same idea but with a loan of 100k
I was certain id never be able to overpay by 10 k each year.

Offset is good if you are going to pay more than 10% but need a good LVT correct me if im wrong.

dimbo61

YBS doing 85%,75% and 60% LTV loans
The better the LTV the cheaper the rate.

jstallan

thanks for all the replies...

Couple of answer to some queries raised :-

1. I wanted a 10 yr fixed as to make the most of current rates and overpayments. Plus it will see us through the education years for my daughter (separate university fund being generated)

2. I can't see me being able to make more than 10% overpayments per year (assuming 10% is based on the amount borrowed)

3. Although they don't do a 10yr offer to new customers, the Natwest range of mortgages look appealing. Comments ?