questions on interest only mortgages

bundance

I am on a repayment mortgage and am worried about possible future money worries.
I had a pre-emptive chat with my lender, the nationwide and they said I had three options. I am in a 10yr fixed deal of 5.18% due to end in 2016
I owe just under £40,000

• Extend the terms of the mortgage
• Temporarily short term reduction of interest
• Move to interest only

My questions are on interest only.

I know these are cheaper, but are they really, when you have to include the cost of insurance etc?

What are the drawbacks of interest only?

What are the advantages, other than cheaper monthly repayments?

What other ways, than endowment policies could I choose?

Would these also be risky, and if so, why?

Thank you

getmore4less

bundance wrote: »

I am on a repayment mortgage and am worried about possible future money worries.
I had a pre-emptive chat with my lender, the nationwide and they said I had three options. I am in a 10yr fixed deal of 5.18% due to end in 2016
I owe just under £40,000

• Extend the terms of the mortgage
• Temporarily short term reduction of interest
• Move to interest only

My questions are on interest only.

I know these are cheaper, but are they really, when you have to include the cost of insurance etc?

What insurance?

What are the drawbacks of interest only?

You stop paying off capital so can have a shortfall at end of term

What are the advantages, other than cheaper monthly repayments?

None that are significant, there is an inflation factor but this is limited and very small these days(complicated)

What other ways, than endowment policies could I choose?

resume repayment later
lump sums that may be due(pension, potential inheritance(last resort))
Sell

Would these also be risky, and if so, why?

Thank you

You don't say why the need to review you mortgage there may be other options

bundance

Anticipated future reduction in income is the reason I may have to review my mortgage.

getmore4less

bundance wrote: »

Anticipated future reduction in income is the reason I may have to review my mortgage.

Temporary or permanent

CLAPTON

do nationwide insist on an alternative repayment method being set up (i.e. an endowment) .. if so then it may be no cheaper per month than continuing with the repayment mortgage)... some figures would be helpful.

uzubairu

I have a Nationwide mortgage and on the form you fill out to request a change to your mortgage, there is a section (if you choose interest only) you have to fill in to provide:-
Details of your investment plans or assets that will be used to repay your 'interest only' mortgage.

There are about 12 options to choose from including ISAs, Investments and the Sale of another property.
You then have to give additional details if you select certain options.

dunstonh

With target growth rates on investments having to be lower to reflect the lower inflation world that we are now in, any investment linked product would be more expensive than a repayment mortgage. Investment backed mortgages are more cost effective in a higher inflation economy (hence why endowments always used to pay out big surpluses before the economy moved to low inflation).

dimbo61

You are worried about future money worries!
Can you afford to overpay now?
Nationwide allow over payment of upto £499 a month on most of there mortgages ( please check with Nationwide)
If you can afford to why not overpay now and reduce the mortgage balance each month.
£499 X 12 = £5988 each year plus the interest saved at 5.18%
You could be mortgage free by 2016 at the end of you fix !

bundance

getmore4less wrote: »

Temporary or permanent

I can't say for sure because of circumstances, but it could be quite a while I may have these difficulties.

do nationwide insist on an alternative repayment method being set up (i.e. an endowment) .. if so then it may be no cheaper per month than continuing with the repayment mortgage)... some figures would be helpful.

No, they offered me three options, should the worst come to the worst
they were
1) a short term change in interest to temporarily help (max 12mths)
2) Extending the term, bu tthe repayents would still be too expensive
3) An interest ony mortgage

I have a Nationwide mortgage and on the form you fill out to request a change to your mortgage, there is a section (if you choose interest only) you have to fill in to provide:-
Details of your investment plans or assets that will be used to repay your 'interest only' mortgage.

There are about 12 options to choose from including ISAs, Investments and the Sale of another property.
You then have to give additional details if you select certain options.

If I chose interest only would I have to choose another investment to pay off the whole 40,000.00 which is outstanding?

or - Would that amount decrease at the end of the term?

I had an interest only mortgage on a previous property, and had an endowment policy, which I later found out to be insecure.
Which is the most secure form of investment to ensure I could pay the amount outstanding at the end please?

With target growth rates on investments having to be lower to reflect the lower inflation world that we are now in, any investment linked product would be more expensive than a repayment mortgage. Investment backed mortgages are more cost effective in a higher inflation economy (hence why endowments always used to pay out big surpluses before the economy moved to low inflation).

So, is it best to stick to repayment?

Thanks for the answers so far, and sorry for the further questions.

give

Pay off the capital if you can otherwise you could suffer in the future when interest rates rise

Boozer

bundance wrote: »

I1) a short term change in interest to temporarily help (max 12mths).

This sounds strange to me, and good if they are willing to do it to help you out, what rate can you give you, if you can afford the payments on this then i would say go for it.