Which option would you take? Repayment or IO?

Thrugelmir

_Andy_ wrote: »

So your broke and you committed fraud? Nice.

Gives mortgage brokers in general a bad name. Mortgage brokers putting their commission before the welfare of their clients.

Comyface

RenovationMan wrote: »

By going interest only, you can jump up the ladder a couple of rungs at a time.

Completely disagree I'm afraid.

Bought my first home for £50k, mortgage for £45k. When I sold, because of my repayment mortgage (and small overpayments), I owed ~£37k. That meant I had ~£8k extra to put down on my new home. Money I wouldn't have had (and needed, because of the large jump I wanted to make) if I'd have taken out an interest-only mortgage.

RenovationMan

Comyface wrote: »

Completely disagree I'm afraid.

Bought my first home for £50k, mortgage for £45k. When I sold, because of my repayment mortgage (and small overpayments), I owed ~£37k. That meant I had ~£8k extra to put down on my new home. Money I wouldn't have had (and needed, because of the large jump I wanted to make) if I'd have taken out an interest-only mortgage.

It depends what you do with the repayment money. If you just spend it, then I agree that you would be better with a repayment mortgage. If you save it, then you might be better off it you get a better rate on savings than you do for your mortgage.

RenovationMan

_Andy_ wrote: »

So your broker and you committed fraud? Nice.

Nope we didn't. They didn't ask for details and we didn't supply them.

gizmo111

Can you go half and half - some of the loan on repayment and some on IO?

RenovationMan

gizmo111 wrote: »

Can you go half and half - some of the loan on repayment and some on IO?

You can go interest only and then make overpayments. In my opinion this gives you the best flexibility. Overpay when you're flush and if you lose your job or have reduced income, you have the minimal outgoing possible on your mortgage. I've said on a different thread that it's horses for courses. If you're not disciplined enough to make overpayment in the good times, then an interest only mortgage probably isnt for you. If you are, then it's a brilliantly flexible product.

_Andy_

RenovationMan wrote: »

Nope we didn't. They didn't ask for details and we didn't supply them.

You declared you had a repayment vehicle which you didn't. Fraud.
Your broker clearly had no regard for compliance, ethics or obligation to their client.

RenovationMan

_Andy_ wrote: »

You declared you had a repayment vehicle which you didn't. Fraud.
Your broker clearly had no regard for compliance, ethics or obligation to their client.

lol, you seem to know more about my application than I do. They didn't ask for a repayment vehicle at all, in writing or verbally. Period. Had they asked then we would have set something up, whether I would then have continued with the repayment vehicle is another matter. I guess it would have depended on the return it was giving in comparison with direct overpayments. I'm a dedicated overpayer and I'm way more motivated by seeing mortgage debt go down rather than investment money go up, so I'd imagine that I'd prefer OPs rather than some sort of endowment or ISA or whatever. Horses for courses. The issue didn't come up, so it's all a moot point anyway.

I hope that supplies you with enough information, Constable Andy.

Comyface

RenovationMan wrote: »

It depends what you do with the repayment money. If you just spend it, then I agree that you would be better with a repayment mortgage. If you save it, then you might be better off it you get a better rate on savings than you do for your mortgage.

True, true.

I think you're the exception rather than the rule, though, if you don't mind me saying.

What I mean by that is not many people would have the discipline to save the repayment money or to make overpayments to reduce the debt.

One of my friends took out an interest-only mortgage (around 2002) with the plan that she would use the bonuses she received quarterly from work to reduce the capital. I don't think she did that once. She's now in a different job with no bonuses and still on interest-only.

Radionotme

This doesn't sound too dissimilar to my current situation. Just before my son was born (a matter of a couple of months) we moved house and ported our existing mortgage while getting an additional topup one. Both were put on interest only to give us flexibility.
I was confident that we could afford repayment, but knowing that having a first child was likely to lead to some unpredictable costs then I figured that I would overpay themortgage when I could, and not when I couldn't.
That's exactly how I treated it, and if I compare the outstanding debt to what it would be if it was a repayment mortgage (using the Microsoft Excel Loan amortization template online), then I'm actually a year ahead of schedule.
Additionally, I now have a decent reserve of overpayment cash that I could potentially use for overpayment holidays or even draw on if absolutely necessary for some reason. (Not that I have any intention of doing so of course!)

However, that was in July 07, pre-credit crunch and I dont know if we could do the same today.

There's a lot of things I regret about those mortgages (fixed rate rather than tracker for example!) but going interest only isn't one of them. The key point is that you /can/ afford the repayment equivalent, but you need the flexibility on a temporary basis.