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Switching to repayment from interest only - what to do??

twinnymum
Posts: 78 Forumite
Hi guys, Im slightly confused about which way to go with regards to our mortgage. Currently on a fixed rate interest only of about 6.6%, paying 702 per month on a balance of 126000ish. This ends in October 2010. I am really keen to switch to a repayment mortgage and start chipping away at the balance.
I contacted our lender who said we can change to a repayment now at the current rate and pay 895 per month, or we can wait until october 2010 and pay at the variable rate, which they say is currently 2.5%, so the monthy payments would be around 605.
So is it worth waiting until the fixed rate to end next year before changing, or would you advise to switch now? I know Im coming across a tad thick but Ive just had twins so my brain does not work as good anymore
Thanks :j
I contacted our lender who said we can change to a repayment now at the current rate and pay 895 per month, or we can wait until october 2010 and pay at the variable rate, which they say is currently 2.5%, so the monthy payments would be around 605.
So is it worth waiting until the fixed rate to end next year before changing, or would you advise to switch now? I know Im coming across a tad thick but Ive just had twins so my brain does not work as good anymore

Thanks :j
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Comments
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Can you overpay without penalty now?
If you can just overpay what you can afford(or below penalty payment).
check the interest is calculated daily.
Overpaying now will save you more in the long run and you can drop payments back to I/O if money gets tight or another expense comes up, go to repaymen, you are commited to the higher payment and some lenders are refusing to put people back on I/O.0 -
thanks, anyone else?0
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getmore4less is right. The key thing is are you allowed to make over payments without penalty. If you can then just paying £195 a month extra each month will convert an interest only mortgage into a repayment type with a term of just over 23 years. £168 a month will get 25 years. £113 will convert it to 30 years.
The benefit of interest only is that the exact repayment schedule is up to the borrower. The danger is if the borrower does nothing or has a repayment strategy that goes wrong.
Mention your lender. There may be others who have experience of the same terms and conditions.
J_B.0 -
Hi Twinnymum
ManicMum here. Just wanted to say you are not alone in feeling like your brain has gone west and left you behind. I post on here too because sometimes I can't get my head round what others may think is simple.
In your case, I would swap if you have no redemption penalties. If not overpay. My lender (A&L) allows me to pay extra £500 a month (if I had it!) and 10% of the outstanding amount once a year in January (again, if I had it).
If they won't let you do that, then start saving every month into an account what you would have been chipping off the mortgage. Then when you do swap mortgages you can pay some off and you may get a 'little' interest in the mean time on the saved amount.
Hope that helps.0 -
Thanks!! Im with it now!
We are with Mortgage Express. When we entered into the mortgage we have great credit files. Now we dont (long story). So no chance of us switching unfortunately :-(
I think I will contact them tomorrow and start making overpayments. Am I right in thinking that the overpayments will come straight off the balance?0 -
also do you think that the interest only payments will come down as a result of muy overpayments?0
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@Twinnymum
As far as I can tell Mortgage Express ( part of Bradford and Bingley) have been completely nationalised. They are not taking on new mortgage business. They are honouring the original terms and conditions including a feature called 'Choices' .
If you are able to apply for this then you can make up to 1% overpayments per month of the outstanding mortgage balance. These payments have immediate effect on the amount of interest charged. The 'Choices' overpayments have to be made on the same date as your regular payment.
I can't say that what I have interpreted from their site applies to your mortgage. If you look through your mortgage paperwork you might be able to see exactly what your options were regarding overpayments.
J_B.0
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