interest only mortgage

madmaiden

I am thinking of moving.

The mortgage adviser (independent) today has said that it may well be worth our while to get an interest only mortgage and then overpay by say 300 pounds per month as this way you can pay down your mortgage much quicker than say a traditional repayment mortgage.

Does anyone on this site know if this is a good idea or not?

Do not want to end up broke in my old age!

We have 17 years to pay the mortgage over. Looking to get a larger house for say the next 10 years until all the kids are off of our hands and then downsize to make sure we have no mortgage in retirement?

Please help!

gaetss

For me interest only or repayment mortgage is the same thing if you overpay, as you will pay the interest and the capital.

JoeK_3

madmaiden wrote: »

I am thinking of moving.

The mortgage adviser (independent) today has said that it may well be worth our while to get an interest only mortgage and then overpay by say 300 pounds per month as this way you can pay down your mortgage much quicker than say a traditional repayment mortgage.

It's not the interest only or captail and interest that's important, it's whether the contract allows overpayment or not without penalty.

Would the contract discussed allow a £300 pm overpayment?

You require strict discipline on an interest only mortgage and this is already built into a repayment mortgage.

madmaiden wrote: »

Does anyone on this site know if this is a good idea or not?

Why not have a repayment mortgage and overpay?

madmaiden wrote: »

Do not want to end up broke in my old age!

You sound like a cautios type of person, with a risky interest only strategy being recommended to you????

madmaiden wrote: »

We have 17 years to pay the mortgage over. Looking to get a larger house for say the next 10 years until all the kids are off of our hands and then downsize to make sure we have no mortgage in retirement?

Please help!

Be sensible and go for a repayment mortgage with an overpayment facility!

I'm still trying to work out why the mortgage adviser is recommending the interest only route!!!

JoeK

madmaiden

Thanks for taking the time to reply.

The adviser felt that it may be a good route for us because of our age. She says that she would only advise an interest only mortgage if it would allow at least 10% over payments a year otherwise it would not work.

I mentioned to her that I had heard that I could save the money in an ISA if this was not allowed and she felt that that would not allow the same benefits. She said it would need to allow overpayments and the interest to be worked out daily for us to benefit.

Hope this is right - we are still thinking about it. Have tried out various mortgage calculators and it looks as though we would need to pay about 1050a month to repay within 17 years?

MarkyMarkD

I don't think that the reason the adviser is giving is the right one.

Using the method of an interest only mortgage and overpayments is a sound way of managing things if your income is irregular, say, and you might not be able to make repayments (including capital) every month. It gives you more flexibility.

But for someone with limited time to retirement, and on a fixed income, I can't see why the adviser would suggest it. The better method to ensure repaying the mortgage by retirement is simply to have a repayment mortgage with a shorter term.

The adviser's comments about not saving the "extra" repayments in a savings account and then paying them off at a later stage are probably valid, unless you can earn a higher rate in savings than you pay on the mortgage. This isn't that unlikely, if you aren't currently using all of your ISA allowance, for example, as many ISA rates are higher than mortgage rates.

The point about daily interest is sort of valid. Daily interest OR monthly interest are a lot better than annual interest. The difference between daily and monthly, though, is far less and it's not hard to ensure you make your overpayments on the correct day in the month to avoid loss of interest on these overpayments.

The equivalent difference in rates between annual and monthly interest is around 0.05% to 0.10% and between monthly and daily interest is a lot less. Don't dismiss a monthly, or even annual, interest mortgage if its rate is significantly better than a daily interest one you are comparing it to.

Hope those comments help.

*EssEncE*

I totally agree with JoeK.

From what you've stated...

If you can afford a repayment mortgage, go the repayment route.

Your aim to to pay off the mortgage at the end of the 17yr period, and it seems you are a cautious person when it comes to risk. A repayment mortgage suits your needs, in that it guarantees you will have paid your mortgage in full come the end of the 17yr term.

Why run the risk of an interest only by putting your faith in the repayment vehicle performing?

It seems amazing and quite worrying your mortgage adviser is recommending this to you

madmaiden

Thanks very much for all your advice. We are going to shop around and ask some advice of others before deciding what to do!

It seems such a minefield this mortgage lark! Puts you off moving!

JoeK_3

madmaiden wrote: »

Thanks very much for all your advice. We are going to shop around and ask some advice of others before deciding what to do!

It seems such a minefield this mortgage lark! Puts you off moving!

You should be aware that advice is subjective, this means that each adviser has his/her opinion and this may change from each individual.

If you are not careful and seek advice from to many advisers you may become confused as a result of conflicting advice received.

Take care.

JoeK