interest only, confused

continualdiamond

Ignore my previous post, i rang the company and got the answers i needed. But now i have some more q's.

So as FTBS we went for an interest only of £82000. Our bank advised us to do it this way for 5 yrs as then my loan is paid off and we have extra money to put towards the mortgage and then switch to repayment.

We thought that was a really good idea.

I get a letter from the mortgage company asking for repayment vehicle in place from the outset of the mortgage. Asking for endowment, pensions, PEPS or ISAS, we don't have any of these. So i was told over the ph we can't have interest only for the 5 yrs if we dont have this back up should one of us fall ill. Our only option is to go to repayment basis.


Do i have any other options in order to go interest only for 5 years? Im not sure how it all works, this repyament vehicle in place???

What do people suggest?

lisyloo

What do people suggest?

It sounds like your bank are messing you about advising one thing and then changing their minds.

You CAN have an interest only mortgage without a repayment vehicle.
You should be aware that you won't be reducing the capital for 5 years so overall there is more interest.
You are also possibly at risk of negative equity if house prices fall e.g. mortgage exceeds house value which means you can't move.
Also are you sure you won't need another loan in the next 5 years, say for a car for example?

If you are sure this is the best way to proceed then dump your bank and find a different one or try a mortgage broker (preferably one that doesn't charge fees e.g. London & Country).

Having an I/O mortgage without a repayment vehicle is quite possible.
Whether it's a good idea is a different question, but I don't know enough facts to comment on your situation.

continualdiamond

Sounds like i confused you. Our bank advised us on an interest only mortgage when we wanted to buy another property.

The banks rates were higher when we wanted to borrow £82000, so we looked else where.

The company now in question is yorkshire building society. They're saying we cannot have an interest only mortgage of £82000 without a repayment vehicle in place because the loan is over 75% value. Where borrowing 100%.

lisyloo

OK, I understand.
The advice came from one bank and a different one refused you.

I am afraid that they are fully entitled to not take on your business if they don't want to.

Some lenders will give you an I/O mortgage.
Other lenders won't.

It's simply a case of finding one that does.
I have ahd I/O mortgages with Alliance & Leicester and Britannia without a repayment vehicle (Britannia customer service is way superior in my opinion).

But basically the lenders can choose their own policies on this matter and whether to accept your business or not.

One reason that I suggested a broker is that they do this everyday so they should be familiar with which companies are likely to offer what you want i.e. 100% interest only mortgage.
Obviously you can do it yourself, but brokers will already have this experience so might save you time.

dwsjarcmcd

I think this is mixed messages. YBS do not insist on repayment mortgages, even up to 100%. I am interested to know what the reference to 'falling sick' and interest only or repayment mortgages means.

I think they are trying to sell you some income protection insurance. Whatever the merits of interest only -v- repayment are, YBS do not insist on repayment vehicles. Out of interest have you already transferred your mortgage, if so why was this not raised earlier ?

continualdiamond

No mortgage has been transfered. We applied online, printed out everything and sent it off.

I then got this letter this morning saying due to the loan being above 75% a repayment vehicle is required to be in place from the outset of the loan. If we cant provide summary details of endowment, pensions etc then they will be able to proceed with the application on a repayment basis.

dwsjarcmcd

Continualdiamond,
What you have been told is not right. Have sent you a private message.

continualdiamond

Ok, will await your private message

TangentMan

Regardless of what YBS are telling you, have you thought about the implications of going interest only for 5 years.

This means that for 5 years you will be making no capital reduction (ie. you £82k will remain at £82k) and all you will be paying is the interest incurred on that £82k. After the 5 years your mortgage payments will increase, not just to the repayment equivilant of £82k but to a level to pay off the mortgage in the remaining term minus 5 years.

Do you know what that payment is likely to be and are you happy with that amount to pay each month?

Just something to think about.

dunstonh

In the last few months, the FSA has been warning providers and advisers over the number of interest only mortgages being done and making sure that all risks are known. Some have re-introduced the requirement to prove you have a suitable repayment vehicle.

regularsaver1

I know that halifax state you have to have a repayment vehicle in place to transfer to interest only too - unless there is a strong rationale and reasoning behind it

FSA are looking into interest only mortgages are they not?