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nterest only repayment vehicle advice needed please
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Try 0% balance transfer credit card deals. 16 months at 0% after 3% fee is available if you have a good credit record. And/or use a 0% for spending card and use the money you spend on that to pay off other things while reducing your average interest rate.Just would like to pay my credit card and overdraft off in this 12 month period and hoped an interest only would enable me to do that.
They want a lump sum. They can't bet on you dying before the end of the mortgage term as the way of getting their capital back.but they want repayment vehicle and won't accept my pension, as there isn't a "final run out date". it is in payment until death urand of course if that were to happen before mortgage was finished, my life insurance would pay out, so I am a bit confused as to why they won't accept the pension?!
The pension is already being paid out. Retirement, or at least taking pension income, has already happened.If you use the pension, what will you live on when you retire?
You probably demonstrated that you were unsuitable as someone to be sold that product because you didn't understand it and they wanted to get rid of you instead of facing a mis-selling claim later. Your post here also shows that you don't understand it.I want an interest only mortgage so I can pay off more capital each month and pay off my mortgage more quickly. ... I last had a meeting with Alliance and Leicester about this last year, and they were extremely hostile to me for no good reason
If all you want to do is overpay then a normal flexible mortgage is fine. That would allow you to overpay as much as you want but you'd have to pay at least the minimum repayment amount plus interest each month.
Interest only mortgages are mainly intended for people who will be investing and who intend to use the capital value of their investments to clear the mortgage. That typically involves using pension investing, S&S investing or investing outside either. The amount invested would generally end up being more than the difference between interest only and repayment, to provide ample safety margin. You would need to show that you already had one of those methods in place and that you are making sufficient payments into it that they could be expected to clear the mortgage at the end of the term.
I have one with First Direct. Primary repayment vehicle is pension commencement lump sum, secondary is S&S ISA, tertiary is investments outside a tax wrapper. I'm paying half of the mortgage capital into those each year so it was easy to accept me. Someone who can do this is a good candidate for an interest only mortgage.For what reason do companies offer interest only mortgages? Please, could someone who has got one tell me what they said to their mortgage company that allowed them to take one out?0 -
It would pay off slower.I want an interest only mortgage so I can pay off more capital each month and pay off my mortgage more quickly.
Your reason for wanting one is flawed. If you can afford a stocks and shares ISA / endowment policy / enhanced personal pension contribtuions etc you may as well just pay that amount off the debt via a capital and repayment mortgage (or overpayments on an interest only mortgage - it's as broad as it's long).Can anyone tell me - What do I have to do to get an interest only mortgage and a repayment vehicle?
You want an interest only mortgage - but you don't seem to know why you want one.
You want a suitable repayment vehicle because you want an interest only mortgage. But until you understand why you want an interest only mortgage no adviser is going to be capable of suggesting a suitable option - most likely because what you want seems to be unsuitable for what you are trying to achieve.0 -
Thanks for the advice! The reason i want an interest only mortgage is because of the amortization schedule. I believe that every time I refix my mortgage, I go back to the first monthly payment being 100% interest. I am not sure whether this is true only if I switch banks, or whether if I take out the same product with Alliance and Leicester, I continue to increase the proportion which is capital. Because the first payment of a mortgage is always 100% interest, when you first get a mortgage, you are always better off starting on interest only, and paying the difference between that and a capital mortgage as a capital repayment into your mortgage. Say I have a £150,000 mortgage at 4.99% interest for 30 years. Capital repayment will be £812.21 pcm, interest only £623.75 pcm. The first payment in a capital repayment mortgage would be £812.21 interest. If instead I started with an interest only mortgage which allows small overpayments, I could still spend £812.21 in the first month, but £188.46 of the fist month's payment would go to pay the capital rather than the interest. If I keep this mortgage until it is paid off, it makes not difference either way - with those £812.21 monthly payments, I will have paid off the mortgage whatever I do after 30 years. But what if I change company after 5 years and I start all over again, with the first monthly payment as all interest? Do they re-do the amortization so that the first payment is purely interest? If so, I would have been better off starting out on an interest only mortgage. What when I renew my mortgage with Alliance and Leicester? Do they start the amortization all over again then? If at any point in the lifetime of the mortgage the amortization starts again at 100%, we should all be on interest only and making overpayments to pay off the capital.0
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No, it doesn't work like that. You have to think of it in terms of the %age against the number you first started with, not the percentage of the reduced capital figure.0
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This is not accurate for any mortgage except interest only mortgages. Every repayment mortgage has at least some capital repayment in the first payment and all others.I believe that every time I refix my mortgage, I go back to the first monthly payment being 100% interest.
It's never true except for an interest only mortgage.I am not sure whether this is true only if I switch banks, or whether if I take out the same product with Alliance and Leicester
Nope. It would be interest of £623.75 and capital repayment of £812.21 - £623.75 = £188.46.Say I have a £150,000 mortgage at 4.99% interest for 30 years. Capital repayment will be £812.21 pcm, interest only £623.75 pcm. The first payment in a capital repayment mortgage would be £812.21 interest.
You get the same with a capital repayment mortgage. And with those any extra payments also come off the capital (normally, there are perhaps still a few where extra is treated as payments in advance for up to a few months in advance).If instead I started with an interest only mortgage which allows small overpayments, I could still spend £812.21 in the first month, but £188.46 of the fist month's payment would go to pay the capital rather than the interest.
Your remortgage is for a lower starting value because you've paid off some of the capital. Your first payment will have the normal mixture of capital and interest parts that repayment mortgages have.But what if I change company after 5 years and I start all over again, with the first monthly payment as all interest? Do they re-do the amortization so that the first payment is purely interest?
If you kept the end date the same as the original mortgage the repayment would be the same, except for small differences due to odd months and any interest rate changes.
They do restart the amortisation but that always has capital aind interest parts unless it's an interest only mortgage.What when I renew my mortgage with Alliance and Leicester? Do they start the amortization all over again then?
You simply misunderstood how modern repayment mortgages work.
Many years ago there could be mortgages where the interest was all added at the start and initial payments would only pay off interest but those haven't been around for a long, long time. You've no need to be concerned about it and remortgaging won't harm you.0 -
I have no idea who told you this is how it works, but it's completely off.
Your payments on a repayment mortgage are calculated so that, if the interest rate remains the same, you will have paid off the full amount after the full term. The first payment will be mostly interest, and later payments will consist of a bit less interest and a bit more capital repayment, but that's because you *owe* more at the beginning. You only ever pay interest on whatever you owe. The amortization schedule is simply a demonstration of this - it's not some tricky fiddle to get you to pay more.
If your first payment on a repayment mortgage was 100% interest, the second payment would be exactly the same, because you wouldn't have reduced how much you owe at all, and thus you'd have to pay the same amount in interest in the second month that you did in the first.
In your example of a £150k mortgage at 4.99% over 30 years, your first payment on a repayment basis would already include the capital repayment bit - your balance after that month would be *exactly the same* regardless of whether you paid £812.21 as an interest payment and a separate overpayment, or whether you paid it on a simple repayment basis. 4.99% of £150k is 4.99% of £150k - it doesn't change depending on whether your mortgage is interest-only or repayment.
If you remortgage after five years (or whatever), the new mortgage payments are calculated based on what you owe and when it is intended to be paid off by. If you've paid off part of your mortgage, you'll owe less, and you'll be borrowing less, and you'll be paying less interest.0 -
I think i understand better now. the first payment isn't necessarily 100% interest, but the proportion of interest you pay is still more at the start (e.g. see the example on Wikipedia's page on Amortization_schedule). Which means that for a given monthly payment, if you are ever going to change the mortgage, you are always better off having an interest only mortgage.0
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thanks very much blueberrypie - this really clears it up, i wrote the previous post before you had posted that. :-)0
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I think i understand better now. the first payment isn't necessarily 100% interest, but the proportion of interest you pay is still more at the start (e.g. see the example on Wikipedia's page on Amortization_schedule). Which means that for a given monthly payment, if you are ever going to change the mortgage, you are always better off having an interest only mortgage.
No, you still don't understand.
You pay more interest at first because you owe more at first. Every month (on a repayment mortgage) you pay a little bit off what you owe, so the next month you owe a little bit less, and therefore you pay a little bit less interest.
If you were charged a flat-rate repayment plus whatever interest you owed, your mortgage *payments* would be far higher at first. For example on your £150k at 4.99%, you'd have to pay about £416 a month to pay off your mortgage - just on the capital bit. And *then* you'd have to add on the interest you owed - so your first payment would be £416 + £623. Near the end of the 30 years, you'd be paying very little in interest - because you owed very little - so your payments would be much lower. In the last month, you'd only pay £417.70, because you'd have very little interest to pay.
For most people, much higher payments at the start of a mortgage would be more difficult, so it's worked out so that your *payments* remain the same over the term.0 -
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