repayment plan?

limpyjoe

My husband is trying to get us a mortgage, we are currently on an interest only mortgage with no repayment plan.
The mortgage company we have aranged a meeting with this afternoon said that we will either have to have a mortgage repayment plan, or pay a repayment mortgage,

I dont really know what counts as a repayment plan that they will accept, is it just life insurance to the value of the mortgage or something else,?
thanks julia

_Andy_

They will let you know at the meeting.
How are you actually intending to repay the debt?

limpyjoe

we have a taxi company that we are not using to get the mortgage as it does not have 3 years accounts yet, but we will have the money to pay lump sums of the mortgage, but they wont accept that.

getmore4less

What is your repayment plan, do you have one?,

let us know and we may be able to tell you if it likely to be accepted.

Whats wrong with the mortgage you have now?

limpyjoe

we are moving house (or trying to if I get mortgage)
At the moment we have been using the taxi business to save for the deposit for the new house, and after that we were hoping to pay off more of the mortgage, I just dont understand how we have an interest only mortgage at the moment for £167000 and we have no repayment plan set up and they never asked us for one, but now they want one for the new house

getmore4less

Times have changed and now lenders want more visibility of getting their money back.

when porting they have another look and use cuurent lending criteria.

What income are you using to try to get this loan?

What LTV are you aiming at?

_Andy_

given that you don't have a suitable repayment vehicle, you will need to go on capital repayment.
Criteria nowadays on IO mortgages is (quite rightly) stricter.

Leon_W

Criteria nowadays on IO mortgages is (quite rightly) stricter.


I think there is probably a little bit more to it than that as many lenders have caught a big cold with interest only mortgages especially in the current climate.

My own mortgage with Woolwich is costing less than £100 for a mortgage of £140,000 (lifetime tracker, interest only). The only time they will get that capital back is when I redeem the loan, so until they get it back they have lost the opportunity to lend it on better terms (for them). At least with a repayment mortgage the lender is getting something back (even at a stupidly low rate) which they can re-lend more expensively.

There is also the benefit that my mortgage is being repaid at the rate of about 5% each year without me having to do anything, so in 25 years time, IF inflation remains the same AND in real terms, the Woolwich would only be getting back about £40,000.

As you can probably work out, I'm a big fan of I/O loans as you get all the flexibility, and for the right person they do work well. Better put a risk warning here as they are NOT right for everyone which I accept.

Although I would be pretty upset now if I had a really good tracker rate but was on a repayment contract.

Regards

dunstonh

I dont really know what counts as a repayment plan that they will accept, is it just life insurance to the value of the mortgage or something else,?

Nowadays, you are basically looking at a stocks and shares ISA. However, for most people that a S&S ISA with a bank would be more expensive than doing a capital & repayment mortgage. So, there is little point.

To do interest only with investment backing or overpayments requires knowledge, understanding and monitoring. It can work well if you do it right but will end up costing you more if you get it wrong.

Thrugelmir

Leon_W wrote: »

Criteria nowadays on IO mortgages is (quite rightly) stricter.


I think there is probably a little bit more to it than that as many lenders have caught a big cold with interest only mortgages especially in the current climate.

My own mortgage with Woolwich is costing less than £100 for a mortgage of £140,000 (lifetime tracker, interest only). The only time they will get that capital back is when I redeem the loan, so until they get it back they have lost the opportunity to lend it on better terms (for them). At least with a repayment mortgage the lender is getting something back (even at a stupidly low rate) which they can re-lend more expensively.

There is also the benefit that my mortgage is being repaid at the rate of about 5% each year without me having to do anything, so in 25 years time, IF inflation remains the same AND in real terms, the Woolwich would only be getting back about £40,000.

As you can probably work out, I'm a big fan of I/O loans as you get all the flexibility, and for the right person they do work well. Better put a risk warning here as they are NOT right for everyone which I accept.

Although I would be pretty upset now if I had a really good tracker rate but was on a repayment contract.

Regards

However you are in a very specific situation. The days have gone of very low rate base trackers.

Expecting wage inflation to erode the debt is a risky stragegy given the current economic climate.

In principle interest only loans carry a high risk to the borrower. As once the mortgage is redeemed at the end of the term, the remaining capital may not produce the income expected.

Cannon_Fodder

Convert to repayment. It can't be that unaffordable if your income is £47k https://forums.moneysavingexpert.com/discussion/2525979

If need be, as each lump sum comes out of the business, put it in an account, and use it to top up your usual interest payments into repayment payments.


"I just dont understand how we have an interest only mortgage at the moment for £167000 and we have no repayment plan set up and they never asked us for one, but now they want one for the new house"

It was called the credit crunch. Things have changed.