Convert Interest Only Mortgage to a Residential Mortgage

Misteeq

Hi,
Just looking for some advice please.

I currently have an interest only mortgage with Birmingham Midshires, which I am looking to convert to a capital repayment mortgage, so I can at last start paying off the capital over the next 15 years.

I have been with this lender since 2008 and have a balance of £67,500.00, on a current interest rate of 0.5%.

My question is – how easy is this to convert to a capital repayment mortgage? Also, does anyone know if I will be put on a higher interest rate, or will the capital repayment mortgage be on my current 0.5% rate of interest?

Another obstacle could be that since 2011, Birmingham Midshires no longer offers residential mortgages – only Buy to Let. I’m just wondering if anyone knows if this rule with this particular lender applies to existing customers or just new customers? Unfortunately, they only speak via a broker now and will not deal with existing customers directly.

As I only have approximately £1k of equity, then I cannot move my mortgage to another lender. I also do not have any other surplus funds available.

A friend of mine said that no lender can refuse someone who wants to convert their existing interest only mortgage to a capital repayment mortgage. Just wondering if anyone knows if this is true or not?

Any advice would be greatly appreciated.

Many thanks.

getmore4less

why not just save the money should be able to beeter 0.5%.

If you can't save then just start paying off the capital.

Once converted there will be no going back to a low payment should finances come unde pressure.

Keep the I/O overpay/save the ammount needed to get you debt free when needed. amount/(12*years) will be close enough on such a low rate.


http://www.whatsthecost.com/mortgage.aspx

£67500 over 10 years @ 0.5% repayment is £577.
£6750/(12*10) = £563

if you mean .5 ovr base so 1% then £592.

Misteeq

Hi,

Many thanks for your e-mail.

Am I right in thinking that if I just keep my interest only mortgage running as it is and then start to 'overpay' each month - say £577.00 per month, then I will clear the debt of £67,500.00 in 10 years?

Sorry if I sound a bit thick - it's just that I don't really have a clue about how mortgages are calculated and how to clear the debt sooner than the actual mortgage length.

Many thanks.

Thrugelmir

Start a cash ISA. Accumalate the cash in there until such time as interest rates rise. Then pay a lump sum off your mortgage.

pjread

Thrugelmir wrote: »

Start a cash ISA. Accumalate the cash in there until such time as interest rates rise. Then pay a lump sum off your mortgage.

This! Better off saving than paying off debt at 0.5% interest

Yorkie1

What the others are saying, is that you'll earn more interest in a cash ISA which pays over 0.5%, than you are paying out on the mortgage at the moment.

So, while that remains the case, you're better off financially by putting your money into that ISA.

When the mortgage interest rate goes up or the ISA rate falls, so that the mortgage rate is higher than the ISA rate, then use the ISA money to pay off a chunk of the mortgage capital.

Other things to factor into the equation are whether to go for an easy-access ISA (lower rates) or fixed-rate (tie up money for a defined period but higher rates); and the fact that when you pay off some of the capital, any deductions you make from your tax bill will reduce because you're paying less interest overall.

No point in trying to switch products just to end up paying more interest on your mortgage unnecessarily.

NB. This all assumes you can pay off the capital in stages without penalty or without being forced to repay the whole lot (i.e. = remortgage elsewhere).

Misteeq

Oh - OK I am beginning to understand things a bit better now - so many thanks for your replies.

It would seem that I am better off putting a set amount each month into an ISA to pay off a chunk of the mortgage in the future.

My next question is then - what is the best ISA around? I will need a tie up money for a defined period one as if I have easy access to it then I might be tempted to spend it. (I have never been that good a saving to be honest).

I can put around £250.00 per month extra on top of what I am already paying in mortgage repayments into an ISA.

If I do this, plus my current mortgage repayments of £168.00, then when can I expect to pay off the mortgage in full?

Thanks for your help.

Typhoon2000

Are you sure your mortgage interest rate is 0.5%? £168 per month interest is way too high on a balance of that size.

getmore4less

£67500 interest only £168pm is 2.99% not 0.5%

Get your last mortgage statement out and post the details.

to pay off £67500 2.99% needs a total payment of

10y £652,
15y £466

Misteeq

Hi,

Many thanks for your replies.

Yes - you are correct - my interest rate is 3% and not 0.5%. Sorry for any confusion.

Thanks for the last reply - that gives me a good idea of what I need to increase my monthly re-payments to as I would like to pay it off within the 10 years.

Thanks a lot.

getmore4less

I would leave the normal payment going out and try for £500pm overpayment.

that way you will get ahead and can review if money is tight any month, over time the regular interest payment will go down or include a bit of overpayment as well.