Repayment or Overpay?

Ads1982

Hello all. Just after a little bit of advice. I currently have an IO together mortgage, with n-ram and am now finally in a position whereby I can afford to move it to a repayment mortgage.

My question is whether it is better to switch to repayment or simply make overpayments in the amount that the difference between IO and repayment would be?

I am concerned that if I switched to repayment and then interest rates increased (I am on the SVR which is by far the best rate I can acheive considering my relative lack of equity) then n-ram may make it difficult for me to switch back to IO. Am I worrying about nothing?

Any advice appreciated.

Cheers

getmore4less

Overpay.

You will not be able to go back to I/O

RenovationMan

Yep, I agree with gm4l, stay on IO and make overpayments. If you move onto repayment they will never let you back on IO and you never know when some sort of financial problem can come your way.

In order to get your mortgage repayments back on track and up to date you might want to try the following:

Use a loan amortization calculator to check how much capital you would have paid off since 2007 had you originally bought with a repayment mortgage and then see if you can tailor your overpayments to get you back on track over a reasonable timescale.

For example, I bought my home in May 2010 with a £300k IO mortgage. According to the amortization calculator my mortgage should be down to $273,498.60 by now. Had I paid nothing off my mortgage then I could set myself a target of say 2 years to get back on track and so I'd look at what my mortgage should be in 2 years time - $252,412.04 and make overpayments accordingly.

£300,000 - £252,412 = £47588 / 24 months = £1983. This means to get back on track with my mortgage by 2014 I would have to make overpayments of £1982 per month. Jeepers! However, I could be more realistic and extend the duration to be on track in 5 or 10 years.

It really goes to show just what a huge impact on your finances it is to have a mortgage payment holiday or to have an Interest Only mortgage with no repayment vehicle.

Good luck on getting your mortgage back on track.