Interest only - make overpayments or change to repayment?

heathy_2

Paperwork found - details as follows:

Current debt £150,398 made up of £121,649 mortgage on interest-only @ 5.69%, and £28,747 unsecured loan on repayment @5.69%. Payment per month is £750.40, made up of £567.80 mortgage and £187.60 for the unsecured loan.

My 5 year fixed deal ends Dec 2011, when I will go onto NR's SVR currently 4.70%.

I have had a payrise of £200 per month and want to use this to the best advantage.

My questions are: should I stay on interest only and make overpayments, or ask NR to change me over to repayment?

Also, when my deal ends next year, presumably my monthly payment will go down, therefore I could use this saving and increase overpayments?

Thanks for all your help guys, advice much appreciated.

blueberrypie

heathy wrote: »

My questions are: should I stay on interest only and make overpayments, or ask NR to change me over to repayment?

It makes no difference, as far as paying down the capital is concerned. If you fear you might not be disciplined enough to stick to an overpayment plan, it might be best to switch to repayment. If you want the flexibility of being able to not make the overpayment occasionally, you should stick to making overpayments.

Also, when my deal ends next year, presumably my monthly payment will go down, therefore I could use this saving and increase overpayments?

Yes, if your interest rate goes down, so will your contractual monthly payment, and so you will have extra funds available for overpaying.

getmore4less

heathy wrote: »

Paperwork found - details as follows:

Current debt £150,398 made up of £121,649 mortgage on interest-only @ 5.69%, and £28,747 unsecured loan on repayment @5.69%. Payment per month is £750.40, made up of £567.80 mortgage and £187.60 for the unsecured loan.

My 5 year fixed deal ends Dec 2011, when I will go onto NR's SVR currently 4.70%.

I have had a payrise of £200 per month and want to use this to the best advantage.

My questions are: should I stay on interest only and make overpayments, or ask NR to change me over to repayment?

Also, when my deal ends next year, presumably my monthly payment will go down, therefore I could use this saving and increase overpayments?

Thanks for all your help guys, advice much appreciated.

I think this will help with your answer.
Based on the loan payment you have a bout 23 left on the mortgage/loan.

£121,649 mortgage on interest-only @ 5.69% £567.80
£121,649 mortgage on repayment @ 5.69% £791.26

Thats an increase of over £200pm you only have £200

Just overpay when you can(within the ERC limits) and review when the fix finishes.


£150,398 @ 4.7% repayment is £893pm.

skinnybowler

You look like you are in a very similar position to me. I have a Northern Rock Together 5 year fixed rate interest only mortgage at 5.99% until August 2011. The amounts of the mortgage and loan are approx the same as yours.

The good news is that you can make unlimited repayments with NR. There is no ERC unless you pay off completely before the end of the fixed term. There is no point formally going onto a repayment mortgage, because then you are committing to pay that amount and if there was a problem, e.g. you lose your job, you are committed to the higher amount.

One thing that you might not have considered is that you can ask them to assign the overpayments to either the unsecured loan (which is already repayment over the term of the mortgage) or to the mortgage part only, rather than apportioning them as they do at present. It is important that you ask them to assign it all to the mortgage part of your account. The reason for this is that any overpayments (over £500) that you make to the mortgage part can be withdrawn at a later date. However, those overpayments made to the unsecured part can only be withdrawn if another credit agreement is put in place (which they probably will not agree to as NRAM are not initiating new business.)

Assuming your house value is approximately what you paid for it and that your totamortgage was 120%(which is the case for me), then your LTV will be about 95% now. That is the secured part is 95% of the value of your property. The rest will be the unsecured loan, which you can keep even if you remortgage (although that will go up to 8% above SVR if you move the secured part).

heathy_2

Thanks to all who've posted with advice. Think we'll stay on interest only for now and make the £200 overpayments towards the mortgage. Then next December when our rate goes down we can put another £100 towards it.

We are very happy in our current house as It's quite big whilst the children are still young. Our long-term plan/dream is to move to an older property with original features, hopefully with an attic or basement in 5 years time.

Making the overpayments for the next 5 years will put us in a good position for us to achieve that dream.

The main thing is our current LTV is approx 95%, and in 5 years time will be in a better position to move to another lender with a much lower LTV

slummymummyof3

You are also making the assumption that the SVR will not go up at the end of your fixed rate.

I would overpay as much as I possibly could without penalty so that you can hopefully be put in the position of being able to change your lender at the end of the fixed rate as your LTV will hopefully be more attractive to other lenders.

At the end of the fixed rate, then look into changing to a repayment, or part repayment and part interest only (providing you have a repayment vehicle set up that is)

Mrs_Z

shortchanged wrote: »

But isn't that essentially what a repayment mortgage is, with the benefit that you HAVE to stick to the payments instead of being tempted from time to time to not overpay because you need a new tv, car or something else.

Well, it depends how you view the 'benefit'? Personally I think in the interest only option there the benefit is precisely the flexibility to either pay or not to pay the extra £200 pcm towards the mortgage rather than be bound to pay it. But then that is easy choice for me as I tend not to get tempted by a new tv or car as long as the existing are in working order

shortchanged_2

Mrs_Z wrote: »

Well, it depends how you view the 'benefit'? Personally I think in the interest only option there the benefit is precisely the flexibility to either pay or not to pay the extra £200 pcm towards the mortgage rather than be bound to pay it. But then that is easy choice for me as I tend not to get tempted by a new tv or car as long as the existing are in working order

I see your point but unfortunately there are many who are not as disciplined as yourself.