Can you cancel a repayment vehicle shortly after getting mortage?

lelole

Hi,

We are moving to upgrade and are considering borrowing the extra money as interest only, keeping the current borrowing as repayment. Our reasoning is this: We are currently speniding a lot of money each month on childcare, and that will be freed up in Sept 2011. We need to upgrade anyway, and if we can't afford to do so we would have to rent out our house (which would hopefully cover our currrent borrowing), and then rent another (ie. paying someone elses mortgage).

We thought if we got an interest only mortgage which is fairly relaxed about overpayment, then we have a fairly flexible mortgage which allows us to not overpay intially, then start to overpay as finances improve.

But we can only get a good LTV (80%) if we have a repayment vehicle, which defeats the whole object!!

Otherwise it is 66% which we cannot work with the house we want. I should add we can afford the repayments on the full repayment amount, esp. as the current borrowing we have is on a tracker we can port at 0.7% above the base rate, we just don't want to get ourselves into a bad situation and risk our house...

So could we get the repayment vehicle initially to satisfy the bank, then cancel it if needs be later?

Thanks and sorry it's so long!

Leah

_Andy_

Fraud then? nice one.

ILW

lelole wrote: »

Hi,

We are moving to upgrade and are considering borrowing the extra money as interest only, keeping the current borrowing as repayment. Our reasoning is this: We are currently speniding a lot of money each month on childcare, and that will be freed up in Sept 2011. We need to upgrade anyway, and if we can't afford to do so we would have to rent out our house (which would hopefully cover our currrent borrowing), and then rent another (ie. paying someone elses mortgage).

We thought if we got an interest only mortgage which is fairly relaxed about overpayment, then we have a fairly flexible mortgage which allows us to not overpay intially, then start to overpay as finances improve.

But we can only get a good LTV (80%) if we have a repayment vehicle, which defeats the whole object!!

Otherwise it is 66% which we cannot work with the house we want. I should add we can afford the repayments on the full repayment amount, esp. as the current borrowing we have is on a tracker we can port at 0.7% above the base rate, we just don't want to get ourselves into a bad situation and risk our house...

So could we get the repayment vehicle initially to satisfy the bank, then cancel it if needs be later?

Thanks and sorry it's so long!

Leah

The two statements do seem to contradict each other.

And if you cannot to pay the repayment vehicle, what happens when rates go up. they only need to go up by 1 1/4% and your payments will double.

lelole

Hi thanks for your replies ...

I ma not sure if I was contradicting myself, but perhaps not putting my point clearly. We are in a good situation at the moment as we can comfortably afford our tracker, and would be able to afford the additional borrowing too, on interest only with vehicle, or as repayment.

But if the interest rates soar, and since the other part of our loan is tracker, we are trying to give ourselves the space to be able to cut back if needing to. I am assuming here that there is a possibility that house prices may fall and the interest rates rise - leaving us unable to remortgage and unable to afford tracker...

Didn't realise that would be fraud as such, but suppose it could be considered that!!.

Ok let me rephrase then. If we have no choice on LTV but to go for a interest only with repayment vehicle, or a repayment mortgage. Would it be safest to go for the interest only with vehicle, rather than the straight repayment, with the assumption we could cancel the repayment vehicle if things did start to go t*ts up at some point in the future?? Or is it just not possible to cancel the vehicle for the duration of the mortgage?

Thanks

Leah

beecher

If you feel you might not be able to afford to pay the capital on a mortgage, then you can't afford the mortgage. Leave yourself a safety net by buying a less expensive house - you say you 'need' to upgrade, but aren't there cheaper options?

lelole

Hi Beecher,

As I said we can afford to repay the capital comfortably at the moment, and probably for the future, as long as things don't go (more) crazy... We have this tracker, and we will be upgrading by nearly as much again, to a fixed rate for 5 years for the additional borrowing, so our borrowing will be split nearly half and half on a tracker and fixed. We currently overpay our tracker, because we did not drop the payments when the rates began to plummet. So we can afford continue paying this overpayment, or just a bit less than currently, alongside the additional borrowing. This should mean that as rates rise we can stop overpaying by as much and still be OK...

Provided interest rates when they go back up go to "normal" levels! Our concern is if interest rates rise to levels like 8% or more, we may not be able to afford things if we do not have enough LTV to swap the tracker on to a fixed... assuming that house prices do drop some more as predicted...

It sounds like perhaps we should just go for it on repayment, and not worry too much? Althoguh the other reason we were considering interest only was because we like the idea of diversifying too - you know having tracker, repayment, fixed, and interest only... Not knowledgable enough to know whether that would really be of benefit though!!

Thanks

Leah

Anyway thanks for all the input, certainly won't be considering fraud!!!:o