Mortgage switch

jilljill2891

Hi there,
We're looking to borrow more on our existing mortgage, is it normal that we can do this without incurring penalties as we are still within our fixed rate period?

Also, does anyone have an idea whether we could change to interest only with the same lender without incurring the early repayment charges?

The reason for wanting to go on interest only is not because we can't afford the payment at present, it's just that we have only had the house one year, have refurbished it, and only plan on staying there for around one more year, and the amount we would be actually paying off the mortgage is nowhere near what we're paying out on the mortgage every month.

Thanks for any help...am seeing mortgage advisor later in the week but I like to be armed with as much info as possible!

kingstreet

- You may be able to take additional borrowing from your existing lender without disturbing your current mortgage. Expect a higher rate for it compared with a normal mortgage. Usual status requirements and assessment of property value apply.

- Converting to interest-only may be possible. Only way to find out is to ask. Some lenders won't permit it without a repayment vehicle. This would mean saving into an ISA or something similar. It will depend on loan to value again.

Thrugelmir

If the purpose is to consolidate debt. Then your current lender may well decline a request for additional borrowing.

Likewise your ability to fund the mortgage.

In the first years of a mortgage. The capital element is a small % of each monthly repayment. So it would be rather concerning to an underwriter if you could not afford your mortgage after just a year.

jilljill2891

It's not to consolidate debt, we're asking for the money to invest.

Like I said, we can afford the current repayments without a problem, it's just that we're not staying there, therefore why pay thousands in mortgage payments to see the actually mortgage go down by hundreds? Seems like a bit of a waste of money.

The current loan to value after the refurb of the property and after we release some equity (if we can) is 65%.

Thrugelmir

jilljill2891 wrote: »

Like I said, we can afford the current repayments without a problem, it's just that we're not staying there, therefore why pay thousands in mortgage payments to see the actually mortgage go down by hundreds? Seems like a bit of a waste of money.

What's a waste of money? The lender is merely being repaid the capital balance you owe. Every month slightly more capital is repaid and less interest as the balance reduces.

JimmyTheWig

jilljill2891 wrote: »

It's not to consolidate debt, we're asking for the money to invest.

This, to me, sounds like a very unsafe strategy. Investments can go up or down. You might end up losing the whole lot. And then you'd still owe the money on your mortgage which is secured on your home. If you can't pay the mortgage after the investments have failed then you could lose your home.
I'm not saying that you shouldn't do it, just that you should be careful.

Like I said, we can afford the current repayments without a problem, it's just that we're not staying there, therefore why pay thousands in mortgage payments to see the actually mortgage go down by hundreds? Seems like a bit of a waste of money.

The amount your monthly mortgage wuold drop by is the same as the amount your mortgage balance currently drops by.
Personally I'd rather pay thousands to see the balance go down by hundreds than pay a few hundred less and see the balance not move at all.
When we switched to interest only (because we were earning more on our savings than we were paying on our mortgage) we had to pay a fee to do so. If you're not going to be there for long it would be a waste to pay that fee.

The current loan to value after the refurb of the property and after we release some equity (if we can) is 65%.

Is the refurb happening with the money you borrow? Or have you already done it.
The mortgage company can't guarantee what you will do with the money, so will do the LTV based on its current value.


In terms of being in a fixed rate period, you can either pay the early redemption charge (usually a lot of money) and get a new mortgage with whoever you want, or you can take a second mortgage with your current provider. That's what we did when we had our loft converted 18 months ago. We now have two different loans on two different interest rates, with different lengths, different ERCs and different repayment methods. But it all comes on one statement and the money goes out on one DD.

jilljill2891

After seeing forecasts of what the new mortgage payment would be we would still be able to afford it and would be willing to take the risk to invest. I guess we're not risk adverse, we like to take money, invest it and make more, so far it has worked (fingers crossed).

I will have to look into the fees of switching to interest only.

The difference between paying repayment and interest only over the year is about £3000, and the balance would come down by about £750 if we were to continue on a repayment mortgage. This means money in our pocket that we can use as a deposit on the next property. Believe me, we look into all the figures very carefully before doing anything and weigh it up carefully.

Refurb is already done, the LTV I mentioned is probably the worst case scenario. Might even be down to 55-60% looking at recent sold house prices in the street.

JimmyTheWig

jilljill2891 wrote: »

The difference between paying repayment and interest only over the year is about £3000, and the balance would come down by about £750 if we were to continue on a repayment mortgage.

Unless I have completely mis-understood the whole concept, I believe you are wrong here. I believe that these two figures must be the same.

Thrugelmir

jilljill2891 wrote: »

The difference between paying repayment and interest only over the year is about £3000, and the balance would come down by about £750 if we were to continue on a repayment mortgage.

Doesn't sound right. How do you arrive at your figures?

_Andy_

you may well find the lender won't lend for the purpose of investment