interest only, confused

regularsaver1

dunstonh posting the same time as me - yes I agree with that

continualdiamond

Ok, basically the reason for going interest only for 5 years is so we can get onto the property ladder. Yes its £82,000, 100% mortgage. When we went to the bank to borrow less (another property in mind at the time) they advised us to do interest only for 5 years, then my loan would be finished with and we'd have an extra £200 per mth to put towards a mortgage.

Details of our situation at present are:

Rent - £400 mth

Mortgage applied for, interest only
fixed rate for 5 yrs costing £430
cash back £400, will get back £400 from bond.
0% for the 1st 6mths, which means we have no mortgage repayments for the 1st 6mths. So we planned to put away £400 (which would normally be our rent) into a savings account of some kind. So at the end of 6mths, thats £2400.

My sister is getting married next Aug in Australia (thats my home) so my bf and i planned to use that £2400 for airfares and spending money.

So so with all that info, what do people think? Also any calculators i can use to get a rough idea on what repayment mortgage would be after tha 5 yrs at interest only.

continualdiamond

Looked at our mortgage, IF we stayed with YBS after 2011 a 30 year mortgage of £82,00 at repayment would be £505, based on a variable rate of 6.40%.

When my loan ends thats to be precise £216 to put towards paying off a repayment mortgage, so £646. More than enough to be happy to pay £505.

We just really want to get onto the property market. No way is my rental property going to stay at £400 a mth rent for the next 5 yrs. I dread my landlord wanting to put it up as he hasn't in the whole time i have lived here
(2 yrs)

lowis

i recently applied for a mortgage with Natiownwide and was told i had to have a repayment vehicle in place. they advised me to open an equity ISA up (from any provider) and pay a monthly sum into it, however the sum i will be paying falls way short of what is actually needed to accrue 90k in 25 years time - i basically only opened the equity ISA up to conform with Nationwide's requirements to get their mortgage.

i am confident that i can pay the mortgage off in the future and IO suits my current circumstances so i am not too worried about the shortfall on the equity ISA - to be honest any spare cash i have will be used to make overpayments on the mortgage as it probably makes more financial sense, i can overpay by 500 a month if i wish.

I agree that lenders should be more responsible in their lending practice - but i think they are just paying lip-service to the whole responsible lending subject. My equity ISA is forecast to have about 30k in it in 25 years time - about 60k short of what will be needed. At the end of the day lenders are making massivre amounts of money out of us - responsible lending or not.

dunstonh

I think the move by some lenders to force equity ISAs has the potential to be another mis-selling issue later on. People should only do equity ISA mortgages if they are high risk in nature. If the adviser doesnt document that risk then we are just looking at a repeat of endowment situation when the stockmarket next crashes.

continualdiamond

Well after all that the person who told me i was told the wrong info was in fact wrong themselves. How annoying...

I just spoke to the same lovely lady who sent me the letter to say everyone had got confused about it and could i speak to the manager instead.

Basically they want a repayment vehicle in place should in 5 yrs time we change our minds and dont switch to repayment, covering themselves as a lender, which i can totally understand.

Thankfully, they just need a letter stating what repayment vehicle where going to have in place, i dont actually have to have it in place when i send the letter.

Ok, so based on that, what should i do?

ie, endowment, pensions, peps, isas.....as a FTB but also as someone from another country, which is best??

dunstonh

You really need to speak with a independent mortgage broker. You are being given a load of BS from the tied salesperson for the lender.

You wont find an endowment available from advice sources nowadays and even if you could, they are fixed term products with a minimum of 10 years. Pensions do not give you access to capital and even the 25% tax free cash is possibly going to vanish in coming years. Peps were withdrawn 7 years ago. ISAs are an option but involve investment risk.

Do you know that many many people have gone interest only with the intention of switching to repayment at a later date but have never done so. Why are you not going repayment mortgage?

I dont want to knock ISA linked mortgages as I have one myself and I am massively better off than I would have been on a repayment mortgage. However, I know what I am doing.

Joe_Bloggs

From a lay person it looks like there is no mortgage advice sought and all products are without advice. The investment product/shares ISA is just for show, to appease the concious of the lender. Future transfer to a repayment mortgage when affordable would be the common sense strategy. It would be nice for this investment to make money, but not be a great burdon to set in motion.
I may even consider getting one if I knew what it was.
J_B.

continualdiamond

Im not going for repayment mortgage as we cant afford it, interest only will be £430 a mth fixed for 5 yrs.

I understand that people have the intention of switching to repayment and never do and i know never say never. But we honestly do intend in 5 yrs time to switch to repayment.

Where prepared to keep money as tight as possible. Basically a loan we have will be gone in 5 yrs time and we'll have that as extra to put towards a repayment mortgage.

Also the mortgage we went for is 0% for 6mths, so because we went interest only, thats no payments, where going to put the money away for those 6mths and use it like i said above so i can go to my sisters wedding.

Otherwise i either wouldnt go to the wedding or have to look at borrowing more money in order to go, not something i wanna do.

regularsaver1

Another reason why lenders do not always accept "I want interest only now and will change later" is due to increase in living costs - if you start a family in a few years time - do you really think people would then turn round and change their mortgage - no not many do or could do

http://www.thisismoney.co.uk/mortgages/mortgages/article.html?in_article_id=411769&in_page_id=58&ct=5

where on earth did you find a mortgage that is 0% for 6 months and no payments?