Can an interest only also be a repayment?

griffin_2

Hi everyone, I'm remortgaging and i've been advised to go for a First Direct Flexible offset mortgage at 0.19 above base. However, I've been told (by L&C) that they only do interest only mortgages but I can pay much more, effectively making it a repayment mortgage? Are there any pitfalls in this? Can a mortgage product really be both? This also gives me the hassle of transferring from my bank account, into the offset account and then into the mortgage though I can live with that I guess.
I'm basically after a low rate with no redemption charges as I may well move house in 18 months. I don't want an interest only mortgage as I actually want to pay much more than I'm currently paying. I'm wanting to increase from £880 per month to about £1500 per month so i can pay my mortgage off in about 12 years rather than the current 28.

AndrewSmith

Try the Coventry B/S, 4.50% tracker for 2 years, no redemption penalties whatsoever (except the standard deed release).

Nice little product

Andy

Rikki

I have a part repayment and part interest only mortgage. The repayment side takes care of itself and any overpaymens I make decrease the amount of interest only balance outstanding.

griffin_2

Thanks for that Andrew. Only problem is with the FD one there are no fees other than the valuation fee (about £180). With the Coventry one they have a £199 booking fee and £350 arrangement fee. So if I'm only in my current place 18 months (not sure how long depends on finances - moving to the country and all that) then that £550 works out quite a lot each month. I guess I have to do the maths.

griffin_2

So you'd recommend it Rikki? Or at least not be scared off by it. I'm just worried there is an interest/tax/offset pitfall that I'm not aware of

AndrewSmith

There are no interest/tax/ pitfalls griffin.

The only thing with using an interest only mortgage in this way is that you have to be incredibly disciplined to make the overpayments to the mortgage whereas with the repayment mortgage it is taken care of by the lender.

Dont forget that if you overpay a repayment mortgage, the overpayments also come straight off the mortgage balance.

The choice is down to you and is not one that we can make for you Im afraid. It depends on how risk averse you are. If you want an absolute guarantee that your mortgage will be paid off then go with repayment. If not, go with interest only.

Up to you.

Andy

Rikki

I would say it suits me at present. It makes my payments more flexible and any extra money I have can reduce the mortgage capital outstanding. I am not commited to higher repayments but can make overpayments and lump sum payments as and when I wish. In theory it keeps the monthly payments lower and I have a time frame within which to work.

griffin_2

That's reassuring Andrew thank-you. The interest only is about £500 and I want to pay another £1000 on top of that. So as long as I use standing orders it should require minimial effort really. Thanks again

griffin_2

Thanks Rikki!

Rikki

Mine started off about 60/40 repayment/interest only. I have now reduced the interest only by 10% and have 50% interest only in savings, but while I can pay above the monthly amount needed I will.

Rikki

Just to add to what [AndrewSmith] said. I have a tracker mortgage for the life of the mortgage so I don't have the additional worry of changing my mortgage every so many years.