need help for mortgage dilemna

brokeanddown01

Hi we have an interest only mortgage with mortgage express who advised us to move to another lender but we have a poor credit history due to some poor decisions and clueless about mortgages when started out.We have nothing in place to pay this at the end of the term as do not know what to get, whether it be a insurance that pays out at end of term or something similar. any ideas or suggestions please.

jamesd

How long until the mortgage ends? Not any initial rate deal, the whole 25 or so years a mortgage is normally for?

If you're comfortable with investments or willing to learn or to ask an IFA (unbiased.co.uk to find one) then an ISA mortgage is one of the better ways to go. That invests monthly amounts into investments within a stocks and shares ISA and you plan to pay the mortgage off with the investments when it ends. You monitor the value over the years and adjust the payments you're making to keep it on track to clear the mortgage, preferably with a 30-50% safety margin on top so you can do it even if markets do badly in the last year of three - you also allow for that by adjusting investments as the end of the term gets closer. The investment gains make this a cheaper option than the next one.

If you're not comfortable with investing and don't want to learn or use a IFA then making capital payments from time to time is the way to go, switching to repayment basis eventually, perhaps. Time and wage inflation will make it easier to do this over the years because the real after-inflation value of the mortgage will fall compared to your rising income.

Cannon_Fodder

Switch to repayment asap. The longer you leave it, the bigger the repayments will have to be in order to clear the outstanding capital in time.

Thrugelmir

Cannon_Fodder wrote: »

Switch to repayment asap. The longer you leave it, the bigger the repayments will have to be in order to clear the outstanding capital in time.

Agree totally. By repaying the capital and reducing the balance owed. In time this will enable you to remortgage elsewhere. Providing you also take the necessary steps to improve your overall credit rating.

Do not risk money by investing in something you do not understand. However attractive it may seem.

jamesd

Cannon Fodder, switching to repayment is just about the worst option available. That increases the minimum monthly payments to repayment level, eliminating flexibility that can be vital in cases of unemployment or just temporary cash shortage.

For someone who wants to repay the best way is to be on interest only and to make repayment level payments. That way you clear the mortgage as fast as repayment but aren't locked in to the higher payments. So you can survive longer in times of financial trouble without relying on begging your mortgage lender to let you switch back to interest only.

Thrugelmir

jamesd wrote: »

For someone who wants to repay the best way is to be on interest only and to make repayment level payments. That way you clear the mortgage as fast as repayment but aren't locked in to the higher payments. So you can survive longer in times of financial trouble without relying on begging your mortgage lender to let you switch back to interest only.

Unfortunately your suggestion falls down in one major regard. Thats the discipline to actually make the capital repayments off the mortgage. Many people are better off by being "forced" to make the capital repayment. Rather than having the option of spending the money instead.

Many lenders now charge a premium for interest only mortgages. So no benefit either in that regard.

If you've regularly repaid your mortgage. Then there'll be no need to beg your lender to assist in times of financial difficulty.

jamesd

Whether you've regularly repaid your mortgage won't make a lot of difference. If you're on a repayment mortgage you're going to face hassle from your lender if you try to drop payments to interest only level. They should agree, but hassle is pretty much the universal report of people who try it. Better to be there already so there's no hassle and you have it as a right rather than as tolerance that may also mess up your credit record by being shown as an arrangement.

Yes, the rates for interest only mortgages are a bit higher. That may or may not be worth paying, depends on the person and how much use they have for the flexibility. There's a limit to how much more I'd be willing to pay, of course.

If someone needs to have a repayment mortgage for discipline reasons then that's fine, that's what they need. May not be most efficient but it beats trying to do something then not really doing it.

Typhoon2000

If your with Mortgage Express, probably have a Choices mortgage that allows overpayment. You can over pay pay as much as 1% of the mortage amount every month without penalty (dont have to reduce as the mortgage is payed off). The advantage is you make a regular payment by direct debit so it feels very much like a repayment mortgage, but the over payments are available should you need it in the future- unlike lump sum payments. I suspect your mortgage rate is probably base rate + some small percentage which is unlikely to be beaten in the current market.

Cannon_Fodder

brokeanddown01 wrote: »

we have a poor credit history due to some poor decisions and clueless about mortgages when started out.We have nothing in place to pay this at the end of the term as do not know what to get,

jamesd wrote: »

Cannon Fodder, switching to repayment is just about the worst option available.

No worse than your suggestion to consider investments to the OP - who from the outset has admitted making poor decisions, being clueless about mortgages and not having bothered to put anything in place...

If clueless about mortgages, the OP is probably clueless about most financial products. But you want them to learn investing fro scratch..?

This is not said to belittle the OP. Admitting their limitations allows better consideration of the options available.

In light of the OP's own honest summary of themselves, you still think it sensible to adopt an approach that relies on self-discipline by someone who has poor credit history ?

Sometimes you have look beyond the "ideal world answer" of what *should* be done by the canniest investor and suggest the option that reflects the reality that an individual faces.

i.e. thinking that someone who has made poor decisions, would leave their 50% safety margin in place - assuming they ever made one - is naive.

And dangerous to their long-term financial well-being. imo.

The very worst possible option.

jamesd

If they are seriously interested in learning about investments there are few better ways than starting out with a few hundred Pounds a month. Gives you time to learn while the amounts are relatively low. If you find you do badly or just aren't interested it's easy enough to switch. If they aren't interested in learning then ISA mortgages are something IFAs are familiar with setting up and monitoring.

I'm not inclined to assume that people haven't learned from their past mistakes and that they aren't willing to learn more in the future.

Leon_W

As Jamesd suggests, I wouldn't rush into a switch to repayment.

For one it's a very rigid structure and you would probably not be able to switch back. Secondly, you have to find out what rate you are actually paying, if it's less than you would receive in a savings account then again, why overpay the mortgage.

ISA's may be a better bet but without knowing your full situation it's hard to say. Seek proper financial advise.

Regards