Changing from Interest only to repayment mortgage?

jonlb72

I am currently looking into changing my interest only mortgage to a repayment mortgage as the interest rates have been so low that they are affecting my savings and I am going to be short of a few thousand pounds by the time my mortgage matures.


I just need to know the risks of changing to a repayment mortgage and what will I lose out on if I decide to end my interest only mortgage if any?


I have almost half the amount of my mortgage cost already saved up in a savings account and will use this money to pay off some of the mortgage and basically start again with a repayment mortgage and pay off the remaining balance of the mortgage.


I just don't want to make a mistake in this decision and need to know the risks.


Thanks

getmore4less

if you change you are committed to a higher payment.

Why not just overpay, or keep saving if that rate(net) is better.

Leon_W

Think very carefully !


I can't think of many scenarios where it has been advantageous for any of my clients to switch from interest only to repayment. Most have reached the conclusion that they are better off by overpaying their interest only loans.


If you do change just be aware that there is pretty much no way back.

Blu4

Surely by paying back what you can each year (maximum you can afford within your limits to ensure no penalties) is the way to go - won't this bring down your interest only payments slightly too?

jonlb72

If I stay with my interest only mortgage the way things are looking now I'd be around £6000 short when the mortgage ends, which I don't want. So why not just move to a repayment and pay off a monthly sum which I can still afford and then it will guarantee to be all paid off.


I was given the option of staying with my interest only mortgage and making extra payments to pay off more capital but in the end I'd be paying the same then as I would do with a repayment mortgage. Or am I still missing something here?

getmore4less

If you can afford a repayment you can afford an interest only with overpayments. they are the same.

The difference is your circumstances change and you can't afford the repayment one month or more you fall into arrears

With the overpayment you just miss one and try to catch up

ViolaLass

jonlb72 wrote: »

I was given the option of staying with my interest only mortgage and making extra payments to pay off more capital but in the end I'd be paying the same then as I would do with a repayment mortgage. Or am I still missing something here?

Yes, you are. You could save yourself the hassle of moving and keep the flexibility of the interest only deal that you're on.

jonlb72

It seems through reading all of your comments that staying with the interest only mortgage is the better option. My mortgage advisor told me it would be better to move to a repayment though and in someway I agreed with him although I am slightly nervous about it hence why I've come on here to get some advice. I should add that my mortgage is quite small and I have 12 years left to pay it off if I went with a repayment option. The deal I would go on would be a 5 year fixed rate and the costs are easily affordable for me.

Thrugelmir

ViolaLass wrote: »

Yes, you are. You could save yourself the hassle of moving and keep the flexibility of the interest only deal that you're on.

Lenders may offer better retention products though if the mortgage is switched onto a repayment basis.

Thrugelmir

jonlb72 wrote: »

If I stay with my interest only mortgage the way things are looking now I'd be around £6000 short when the mortgage ends, which I don't want. So why not just move to a repayment and pay off a monthly sum which I can still afford and then it will guarantee to be all paid off.

Peace of mind is something worth having in my mind. Many people are ill disciplined when it comes to their personal money management. Words are the easy part. Actually overpaying every month is a different matter. All too easy for the money to drip away. Whereas being paid and immediately making a payment sets the matter in stone.

questionss

The only reason I can see for changing to a repayment mortgage would be to increase the term.