changing from interest only mortgage.

almeria1

My youngest son has an interest only mortgage on his flat.I believe he has around 68 years left on the lease. He would like to come off the IO mortgage however I do not know where to point him for advice on where or indeed if he would be able to obtain the repayment type that we had for so many years as I understand the trend these days is to take out mortgages for terms of 3 to 5 years and then shop around again. Any advice or pointers gratefully received.

Thrugelmir

Start with his current lender. As switching onto a repayment basis should not be an issue. In terms of remortgaging the length of the remaining lease will be.

HappyMJ

almeria1 wrote: »

My youngest son has an interest only mortgage on his flat.I believe he has around 68 years left on the lease. He would like to come off the IO mortgage however I do not know where to point him for advice on where or indeed if he would be able to obtain the repayment type that we had for so many years as I understand the trend these days is to take out mortgages for terms of 3 to 5 years and then shop around again. Any advice or pointers gratefully received.

I'd stay on interest only and save up the money elsewhere. Then once his high interest savings accounts match the outstanding mortgage then pay it off in full. The remaining term of the lease will limit the term of a remortgage.

Personally I'm not into remortgaging every 3 years. It might save a little money but the hassle of finding another new deal is too much for me for a couple hundred pounds saving....so I just found a mortgage with a very low standard variable rate which allows overpayments of any amount.

holly_hobby

Switching to repayment will be an issue if he fails the affordability assessment, which has to be conducted as essentially the IO mge will be closed down, and a new C&I mge effected in its place.

As suggested, first call is his current mge lender to bottom out that route.

Regarding the lease, most lenders want circa 30 yrs+ of mge lease remaining after the mge end date - and whilst this may not affect his own application, it may obviously have an impact on your sons desire for any onward sale, so he want to look at purchasing the freehold, or having the lease extended at some point in the future.

Hope this helps

Holly

StuC75

Either switch to a repayment mortgage, or if his mortgage company allows over payments - look to make extra payments that will come straight off the balance (and so safe some interest) as thats all that really happens with a repayment mortgage... when he subsequently moves deals, he would just be moving lenders..

More concerning should be the 68 year lease - granted it may see him out.. but will start reducing what his property is seen to be worth..

almeria1

My son contacted his mortgage company and as mentioned above one of the options offered is this overpayment method. Reading the paperwork it seems an ideal solution as he can vary payments rather than the larger repayment mortgage as in this day and age with the employment situation comes the possibility of a job loss. I would be interested to read if anyone has switched to this overpayment method and how it worked /is working for them and any pitfalls we may be unaware of.

Yorkie1

You don't actually 'switch' to the overpayment method; you just make a personal decision to make overpayments as permitted by the product - there may be limits either to frequency or amount.

The flexibility is both a good thing and a pitfall. It requires self-discipline but also enables you to revert to the lower payments if needed.

Does he have a separate repayment vehicle for when the mortgage comes to an end? The lender is likely to check increasingly frequently, and there is the risk that if there is no repayment plan they will make him switch to a repayment version in the future.

almeria1

On re-reading the paperwork I see there is no minimum or maximum amount each month and a phone call will set up the facility. The main thing as I see it is that he can reduce the Capital balance as and when his funds permit it. What I am unsure of , and this is where a person with the correct knowledge would help is the way the ratio of money is applied. I may not have expressed myself very well but what I mean by that is that a repayment mortgage although a bigger burden may be a better bet in terms of economics.

Yorkie1

Surely the lender takes a certain amount for the interest payment? It's not up to the borrower whether they make any payment at all in a month?

Assuming you mean there's no given amount for overpayments, then that is usual. An interest only mortgage is not structured to require any overpayments - so it's entirely up to the borrower whether, how much, and when they make payments towards the capital.

Any amount over the interest-only payment figure will come off the capital.

almeria1

Yes you are correct ,he must maintain his regular interest only payments but can vary the overpayments.