Advice required on a short term mortgage

rqy99g

Hi

I want a short term mortgage for £90,000 to help buy another property. The reason why short is that I have the money but it is locked in a PO loyalty bond until February next year.

Our circumstances are: Home owners no current mortgage, I'm 55, semi retired my wife (54) still works full time and we have a combined income (inc pension) of around £50,000.

So would it be an expensive to set up a mortgage and then pay an early exit fee after 12 months?

Would interest only be the way (if at all possible)?

On a post I made under loans someone suggested an off set mortgage. I don't really understand that?

Regards

Simon

kingstreet

Typically, a lender won't offer a mortgage for less than five years. They are not interested in your short-term lending.

Similarly, interest-only is offered by few lenders these days and the restrictions and requirements are onerous.

If you can demonstrate affordability for a new repayment mortgage over a longer term, take a penalty-free tracker product which allows unlimited overpayments or indeed an offset product, where the money you obtain later is placed in a savings account with the mortgage lender effectively equalising the mortgage account, leaving you paying no interest.

Offset products can also be penalty-free, so you would have the flexibility to repay the mortgage, or offset it whichever you prefer.

rqy99g

Do the products you described tend to have higher set up fees and interest rates?

kingstreet

Higher than what?

You need to give me a starting point to work from.

I suggest you carry out some research into penalty-free tracker products and offset products without penalties and establish what is available for your personal circumstances and loan to value.

An independent broker may be a good point of reference, especially if you can consult one recommended by friends or relatives.

rqy99g

Sorry... just haven't even thought about a mortgage for over 30 years!

I will start researching and stop being lazy!

rqy99g

Am I right in thinking that in the early years, most of your payments go to paying off the interest with a smaller part reducing the capital?

So if I did pay off say after 12 months it would still have been an expensive way of borrowing as my payments wouldn't have really touched the capital?

kingstreet

If you go interest only, you repay only the interest and owe the same amount when you repay.

If you go capital & interest, the additional money you pay each month comes off the capital, so what you owe falls.

As the capital balance falls, less of your monthly payment in future pays interest, more repays capital.

kingstreet

For example, £100,000 @ 4.99% 20 years.

Interest only - £415.83 per month. Amount to be repaid in future £100,000.

Capital & interest - £659.40. Difference in monthly payments £243.57.

Balance at end of year;-

1 - £97,009
2 - £93,866
3 - £90,280
4 - £86,491
5 - £86,491.

So, after five years, you will have paid £243.57 x 60 = £14,614 and your mortgage balance will have fallen by £13,509. This will depend on how interest is charged and collected, annually/daily and in advance/arrears, so the capital balance won't be totally accurate.

rqy99g

So just looked at the Coventry Flexx for term

Based on £90,000 mortgage over 10 years, current rate 1.89%

Would expect to pay £824 per month (total interest £1704)
Arrangement fee £300
No early redemption fee but a charge of £125 (admin?)

So I make it that if I could pay it off in twelve months it would cost me £2,129 for the loan in total.

Does that sound right?