YBS offset mortgage interest only. What's the catch

rich3245

Hi,

I have just applied for the YBS 5 year fixed rate offset mortgage at 4.29% with a 25% deposit on a total house price of £165k.

I have gone for the interest only option which commits me to £447.50 per month.

I expect to be able to save an additional £800 to £1000 per month. I was reluctant to commit to a repayment mortgage as my partner's employment is on a contractual basis and there is a small chance she may become unemployed which would then mean we may struggle to make the equivalent repayment rates.

If we both stay employed and can overpay £1000 per month, we will have saved enough to pay off the mortgage within 10 years, whilst if we needed any cash for any reason we could use the savings in the offset account. We are very disciplined with money and would only take cash out for a very good reason.

As far as I am aware there are no early repayment charges or overpayment charges and the overpayment each month is unlimited (as long as we don't pay it off within 5 years).

I can't see the catch but haven't yet paid any money to YBS so if there is one then please point it out to me - I am a first time buyer and although I've done a lot of research I am well aware that I could be being naive.

Does anyone else have this or a similar mortgage and if so, how is it going?

Thanks,

Rich

Jenniefour

Are you sure that you don't have to have an investment/savings vehicle to cover the repayment of capital at the end of the term? My understanding is that these days most mortgage lenders are not provding interest only mortgages without such a plan for residential mortgages. See below, taken directly from the YBS site.

Q: What is an Interest only mortgage?

A: If you choose the interest-only method, you do exactly that - pay just the interest on your loan every month. When the mortgage term comes to an end, you then have to repay in full the 'capital' that you owe us. This is usually done using a long-term investment such as an endowment or a pension.

It is your responsibility to ensure that you have a suitable policy in place to repay the loan and that you pay the premiums direct to the product provider.

originalmiscellany

Don't know if it's relevant, but we got our interest only mortgage, based on the fact that we had the potential to make a large overpayment per month - which has proved true...

You are like us, except we're going from an 18 year mortgage to an 18 month one if we play our cards right

getmore4less

whilst if we needed any cash for any reason we could use the savings in the offset account

Spending the money is the main catch, but you say you have that covered.

There is another you have savings so reduce your chances to benifits.

With some offsets(barclays, not sure about YBS or others) this can be overcome by overpayeing rather than offseting, if you can still get the money back at the same rate.

If you have money elsewhere this become less of an issue,

There is a bridge to cross, where you care about the issue and then have enough to not.

I am a fan, we have taken all our overpayments out to put in savings which pay more.

LittleMissAspie

The benefits thing is a slight catch, but it sounds like you are on a decent salary so your girlfriend would only be entitled to JSA anyway, which is like £60 a week so you won't be missing much. You could save up £6k in the offset bit and then switch your £1k a month to repaying instead, so having a lump sum for emergencies.

Our mortgage is a First Direct offset, which are all interest-only technically, and we were never asked for proof of a repayment plan.

getmore4less

The benefits thing is a slight catch, but it sounds like you are on a decent salary so your girlfriend would only be entitled to JSA anyway.

Loss of both incomes is always a risk usualy less than one unless you work for the same company.

dimbo61

You have confused me big style as we have a YBS offset mortgage and I dont think they do interest only!
We have just finished a 5 year fix and have been overpaying like mad and also building up savings in the offset account!
I consider YBS to be a good lender and have been very happy that we took out the offset but like I said please checck that the 5 year deal at 4.29% is Interest only if not then set the term over 25/30 years and overpay/save into the offset

dimbo61

If the mortgage is about £124500 at 4.29% that works out at £445 IO and £677 repayment over 25 years ( this is all assuming that the rate stays at 4.29% WHICH IT WONT!)
Now if you overpay by £1000 a month you will have cleared the mortgage in 8/9 years as you need to pay about £800 extra to clear it in 10 years.
If you do take an offset mortgage I would overpay/save into offset account 50/50% until you have £16K in savings Only my views Good Luck