Saving to repay my Interest Only Mortgage

nwflyboy

Afternoon Guys,

Still new to these forums, so thanks in advance for any help.

I have 20 years left on my interest only mortgage, and really should start saving towards repaying it.

What would be the best vehicle for that? What type of product am I looking for?

Cheers,

NW

Cautious_Investor_3

Hi

Why not just switch it to capital repayment?

The Cautious Investor

JoeCrystal

Well, how much is the capital is, I am just wondering.

xrjtg

If you wouldn't borrow the money to invest it, repayment does seem a more sensible option.

What interest rate are you paying? How much are you paying monthly now, and how much can you afford to pay? Do you have any savings, investments or pension provision already?

nwflyboy

Hi Guys,

Switching mortgage is not an option for two reasons: My credit history is shot to bits (CCJ), and perhaps more importantly, the SVR (which I am on) is 3% over BoE!! Given that I owe in the region of £128k and my property has a value of approx. £138k, I think that reflects a rather attractive reason to stay put. Unless I am missing something...

NW

Cautious_Investor_3

nwflyboy wrote: »

Hi Guys,

Switching mortgage is not an option for two reasons: My credit history is shot to bits (CCJ), and perhaps more importantly, the SVR (which I am on) is 3% over BoE!! Given that I owe in the region of £128k and my property has a value of approx. £138k, I think that reflects a rather attractive reason to stay put. Unless I am missing something...

NW

You don't need to remortgage to change from Interest Only to Capital Repayment. Simply call your lender and they will make the change for you.

Given your loan to value ratio and some of the predictions for the future of house prices moving to capital repayment and creating some more equity may be a sensible solution.

The Cautious Investor

nwflyboy

Simply call your lender and they will make the change for you.

Hmmmm I has not really considered that option. Call me a cynic, but how likely are the mortgage company (GE) to try and change the terms of the mortgage though?? I will phone them tomorrow.

I would have though though, especially in the current situation with saving rates higher than 3.5%, then my money works harder there...??

I appreciate that may not always be the case. Why do you suggest building up some equity? I am fairly bullish on my property's price - it hasn't lost much, due to being in an area with a massive student populations, and at it's current price delivers an investor approximately 8-9% yield... I am right next to the University.

Thanks for your input, much appreciated.

NW

JoeCrystal

Well, in order to save up £128,000 over twenty years. It either mean saving £6,400 every single year or roughly £540 per month (rounding up to nearest ten) and not touching it, barring interests.

If you are assuming to use compound interests to build up the capital along with savings, then assuming 3% interest per year, then only £400 per month for rest of twenty years is needed.

Just my two pennies worth

Cautious_Investor_3

nwflyboy wrote: »

Hmmmm I has not really considered that option. Call me a cynic, but how likely are the mortgage company (GE) to try and change the terms of the mortgage though?? I will phone them tomorrow.

I would have though though, especially in the current situation with saving rates higher than 3.5%, then my money works harder there...??

I appreciate that may not always be the case. Why do you suggest building up some equity? I am fairly bullish on my property's price - it hasn't lost much, due to being in an area with a massive student populations, and at it's current price delivers an investor approximately 8-9% yield... I am right next to the University.

NW

Hi

I don't know your circumstances but in over 15 years in financial services I have never known a mortgage lender refuse a switch to a capital repayment mortgage.

At the moment you may get more interest from a savings account than you are paying on your mortgage (remember savings rates are quoted gross) but this is unlikely to continue in the medium to long term.

Re property prices, clearly I don't know where you live and you may be in a pocket where house prices are stable but I'd make the following comments:

1. Most industry 'experts' believe house prices are in for a rocky ride in years to come. Interest rates will have to rise over the next few years, this will put downward pressure on house prices

2. Rising unemployment, which most people believe will happen, will also put downward pressure on house prices

3. You admit your credit rating is poor, creating equity in the house is therefore useful should you ever decide to move. There is a counter argument to this though in that if you pay money off your mortgage and the house value falls the money that you have repaid has essentially been 'lost' until such time the house price rises again, whereas if it were in a savings account it is not exposed to the vagaries of the housing market

4. A capital repayment mortgage is guaranteed to be repaid at the end of the term

Your choice of course, just a few thoughts to 'help' you along the way.

The Cautious Investor

Rob_192

Cautious_Investor wrote: »

Hi

3. You admit your credit rating is poor, creating equity in the house is therefore useful should you ever decide to move. There is a counter argument to this though in that if you pay money off your mortgage and the house value falls the money that you have repaid has essentially been 'lost' until such time the house price rises again, whereas if it were in a savings account it is not exposed to the vagaries of the housing market

Except, the money would never best lost as you would otherwise just end up with negative equity. Regardless of how much houses drom, you still have the mortgage and that is fixed.

I agree with the others on here, pay down that mortgage.

R

Cautious_Investor_3

Rob_192 wrote: »

Except, the money would never best lost as you would otherwise just end up with negative equity. Regardless of how much houses drom, you still have the mortgage and that is fixed.

I agree with the others on here, pay down that mortgage.

R

The point I was rather badly trying to make is that if the OP saves say £200 a month into a Cash ISA that money, assuming he doesn't spend it, would always be there in the future for use as a house deposit if necessary. However if the £200 per month was repaid from his mortgage and the house value fell so much that he was in negative equity (despit the monthly payment) he would not have a deposit for any house move.

I do agree though, I'd pay the mortgage off by switching it onto a Capital Repayment basis.

The Cautious Investor