Interest only

ianbal

Hi.
My wife and I have excellent credit history, we both have good incomes and not a lot of mortgage left really.
But having already made significant savings with advice from this site, we're now tackling our mortgage with only one purpose......... to save money.

We've just come off fixed with existing mortgages. Our existing lender (hsbc) does seem keen to keep our business, but are only interested in reducing booking fees.

We have had an offer from a broker. He was whole of market, but has come back with Abbey offer, which does seem very good ! Interest only, 4.3% apr and then make a monthly overpayment.

53000 mortgage over 13 years, interest only.
200 pound overpayment + 193 interest only payment, all per month.

This does represent a good saving per month as far as I can see, (approx 60 pound)

We've always been traditional mortgage customers, and very loyal, (fixed/repayment) all the new types of mortgages are confusing me and I don't want to make a silly decision !! ??

We have savings which we can take next year, and wish to use them to pay a chunk off.
This Abbey mortgage has a 10% overpay limit per year.

All help, most greatfully received


Regards


Ian

Pobby

Maybe I`m missing something here.Why an interest only mortgage?Would you not be better off with a repayment mortgage that would allow overpayments of more than 10% per annum?

ianbal

As i understand it, the interest only provides a much lower apr.

But you may well be right Pobby, and thanks for replying.

HSBC have offered us a tracker repayment with no limits, but much higher apr.
I admit I'm having a problem wrapping my head round the whole concept. I assume, say, 6 years down the line we'll have paid a reasonable chunk off of the capital amount, we may not be able to pay 200 pounds a month, as that would take us over the 10%. ??
Would I then have to put additional funds into savings account to cover the end of the mortgage ??

Regards


Ian

Pobby

How about trying to find out if you could have a mortgage over a shorter period.That way the capital repayment would be higher yet the interest part of the mortgage should still be around 4.3%.

Joe_Bloggs

Not a lot makes much sense on this thread. Fees are very important in working out whether the headline interest rate is as good as it says. Especially for moderate mortgages. How long the offer/discount lasts is also a vital factor.

Some mortgages that start off on a low are 'stepped' in that the interest rate escalates year by year. Pehaps 4.3 to 5.3 then 6.3%. Watch out for being tied in on a high rate.
If you don't understand what you have been offered then ask for clarification.
J_B.

ianbal

Thanks for reply's.
I do now have some clarification on various points.
It's a fixed interest only, for two years. It will then revert to a standard tracker, though still interest only, but we can then pay whatever we want over.
The broker says he wants my business in two years time......

You're correct, headline fees, don't appear to be in his equation with regards apr. However, he has now said he'll negotiate his fees. Originally he quoted 1%. There are also legal fees to be payed. I also need to ask whether Abbey require valuation fees.......
Can you see why I'm confused yet ??

Regards


Ian

MortgageMamma

ianbal wrote:

Thanks for reply's.
I do now have some clarification on various points.
It's a fixed interest only, for two years. It will then revert to a standard tracker, though still interest only, but we can then pay whatever we want over.
The broker says he wants my business in two years time......

You're correct, headline fees, don't appear to be in his equation with regards apr. However, he has now said he'll negotiate his fees. Originally he quoted 1%. There are also legal fees to be payed. I also need to ask whether Abbey require valuation fees.......
Can you see why I'm confused yet ??

Regards


Ian

Yeah I bet the broker wants your business in two years time. Sorry but I don;t think its cost effective for a 2 year fixed rate on a 53k mortgage to be changed and incur fee's every two years, as it is likely to defeat any savings in remortgaging, particularly if you have to pay legals and valuation charges.

You need a full remortgage analysis mate with abroker you feel comfortable with. It doesnt take that long. Has your advisor explained to you why the Abbey product is more beneficial for you above all others? has he quantified and presented you with a calculation of savings you will make (taking into account all fee's including estimated legals) and how this compares to your current lender? Has he told you to investiage the best deal your current lender is offering you? has he compared this Abbey product to others on the market? If he has not done all these thigns then drop him/her.

Also, a 1% fee is a little steep and if you are adding it to your mortgage it will make remortgaging even less effective. Bear in mind you will pay interest for the mortgage term on any fee's added to the loan.

I would recommend you speak to a whole of market mortgage broker, preferably fee's free, and get them to investigate if there's anything more suitable.

If you don't trust your broker, or get a gut instinct something isnt' right (never underestimate the power of your instincts), then don't do the business with them

MM

cloud_dog

When you remortgage the following costs are likely to required, although some lenders offer deals, or refunds, but the basics are (assuming you move lenders):

* Reservation Fee (some do, some dont)
* Arrangement fee (can be in the region of +/- £400)
* Valuation Fee (tends to be banded based on the value of your property)
(can be in the region of +/- £200)
* Legal Fee (your solicitor - cost depends but around £300 - £400 possibly)
* Mortgage Administration Exit Fee (cost around £195 - £295)

Another thing to watch our for is to make sure you are not tied in to the lenders building/contents insurance policy; these can work out expensive.

You really need to add all these costs up over the introductory term, in your case 2 years, then divide the total cost by 24, you will then see a comparative cost per month. With this figure you can add it to the monthly repayment costs for each of the different mortgages to see what the true cost saving is. You CANNOT ignore these charges.

Obviously the ability to overpay within the introductory period is also important to you so you need to consider this.

The rate you state (4.3%) does appear very attractive and not one I seem to be able to get close to by using some of the online mortgage comparison sites. Are you sure you are not tied into their SVR after the introductory period????

ianbal

Thank you for all the reply's.

I couldn't find 4.3% with the searchs either.

I think I probably will trust my gut instinct....... I feel I'm getting fed bits of info at a time, and only when I ask.
A £60 saving a month seemed to good too be true............
I guess that's why I felt compelled to ask here.
Thanks too all of you !

If you need any advice on flooring...............

Regards


Ian