mortgage worry

MURPHY20

please help, five years ago we made improvements to our home and consequently took out a further advance on our mortgage to fund the work. however, our broker made a mistake with the mortgage application and an interest only mortgage was applied for instead of repayment. on trying to change this my husband's business took a down turn and our income halved, therefore we stayed with the interest only mortagage and the plan was to change to repayment after the 2year fixed period. in hindsight this was such a bad decision. we are now five years in paying interest only, our income has not gone up and have no savings for repayment.
we are both 45, our home is worth 190k but we owe 139k in mortgage

kingstreet

So, the main mortgage is repayment and the further advance is interest-only?

How much is each bit?

Ask your lender what the monthly cost of converting the further advance to repayment would be?

What about the rates for the two bits? Any mileage in remortgaging to a new lender to get a better rate while putting the whole mortgage on repayment?

MURPHY20

thank you for your reply
i am embarrassed to say that the whole amount got put onto interest only, that was the mistake made
fixed rate with the Chelsea BS and it ends in May 4.79%

kingstreet

So this wasn't a further advance, you actually remortgaged the existing amount and borrowed more with a whole new mortgage with Chelsea Building Society?

You need to look at the documentation given to you by your adviser at the time. He should have given you a key facts illustration (KFI) for the recommended mortgage product and a suitability letter which explained the reasons why the product, term and repayment method were selected.

The KFI will show in Section 3 the chosen repayment method. Was it interest-only, or capital & interest repayment? What is reflected in the suitability letter? Does this describe an interest-only mortgage or capital and interest repayment?

This is a very difficult mistake to make. When discussing the options with a borrower, you need very definite reasons for choosing interest-only and these would need to be fully documented. I can't imagine a mortgage being offered on interest-only when it was supposed to be repayment, so I'm wondering if this was a mistake, or you discussed and agreed on interest-only and the circumstances moved against you and prevented you following the plan you agreed with your adviser?

Can you clarify?

Dave_Ham

I would appreciate some clarity also please, so we can try and help.

At the moment it just feels like you wanted a repayment mortgage, but much happier with the interest only monthly amount - and so say all of us..

If I have missed something and you want to get back onto repayment and would like to know how - you have come to the right place and we can give you some calculators where you can obtain indicative costs and help you with this.

If you are looking for some sort of moan about the advice and alledging it was the brokers fault, you will be better tagging onto the the BOI increase SVR thread...

Kingstreet was more diplomatic this time..

MURPHY20

The mortgage was definitely applied for as a repayment and part interest only mortgage. However, when the offer came back it was for full interest only. My husbands income had changed and it was the easy option. I am not blaming the financial adviser, I know we should have made the decision to cancel, but he was quite persuasive to go ahead.
I would just like some advice on a way forward, our income at present is very tight we have 18years left and the payments would be too high for full repayment. Is it possible to get a percentage on repayment and remainder on interest only and then we would have more equity in our home at the end of the term? any advice on the way forward is appreciated

The_J

Come on, let's not look for anyone to blame and sort this mess out.

You should be able to speak to Chelsea about switching some of the mortgage to repayment. However, you should also be able to overpay 10% of the mortgage balance (£13k) each year, do this. Bring the balance down gradually and you'll be paying less interest a month while you are doing it as well.

kingstreet

There is no reason why you can't ask your lender to convert part of your mortgage to repayment. At least you'll be addressing some of the problem now.

Alternatively, you can make voluntary overpayments once the fix ends. Is your income sufficient to remortgage elsewhere as your rate is going to increase when the fix ends in May?

It would help to reduce what you owe if you can get a lower rate and at least carry on what you've been paying for the last five years.