advice needed on interest only mortgage!.

shazzer_2

Hi all, Ive had good advice from you all in the past so here goes.

I have an interest only mortgage of £105K I am on a 3 yr discout rate with RBOfScotland. At the moment penalty is 2% However come August 2005 redemption penalty will be 1% until August 2006 when there will be none.
I will have a lump sum of £40K very soon and am keen to pay off some of the mortgage as we are paying £500 a month interest only at the moment. However contract says no part payment allowed at all until August 2006.
I phoned RBOS today and asked to speak to a decision maker etc but was told in no uncertain terms penalties would not be waived and no early part repayment allowed even when I said I would switch lenders etc and after insisting on speaking to someone with more authority girl said she would pass me onto a colleague who would explain exactlythe same thing to me so I hung up fearing no progress.
So really I want to know is there any other options out there , or do I have to grin and bear with RBOS until August 2006?

meanmachine_2

The replayment penality is there exactly to stop this type of activity. Sorry. Nothing you can do by the sound of it.

If you agree to a discounted period, then you'll inevitably to be bound to its rules. You don't outline why you think you should be exempt.

I haven't done the calculations, but isn't it cheaper to wait until Aug 2005, then take the 1% penalty and remortgage for £65K? Otherwise, yep, put the money in a high interest account and wait til Summer 06.

shazzer_2

Hi I think I should be exempt because the rules stink, enough reason?. hehe but yes I was just trying , if you dont try you dont get eh? yep think you are right, just feeling frustrated being tied in as I never forsaw this situation, hey ho. Thanks

meanmachine_2

shazzer wrote:

Hi I think I should be exempt because the rules stink, enough reason?. hehe but yes I was just trying , if you dont try you dont get eh? yep think you are right, just feeling frustrated being tied in as I never forsaw this situation, hey ho. Thanks

Hey I'm no expert. You should wait for other, more knowledgeable people on here to give advice before you do anything.

They might be able to offer some pearls of wisdom.

MarkyMarkD

I can't see why you didn't foresee this situation. You bought a 3 year discounted mortgage with a 3 year tie in. So far, so normal.

And you have to pay a penalty if you overpay or redeem early. Also so far, so normal.

It's worth paying the penalty if the rate you can earn on the savings (after tax) is sufficiently below what you can save on the mortgage. If you are on a discount of (say) 5% then you would need to earn over 5% in savings (tax free) or about 6.5% taxed at 20% etc. BUT because of the penalty, the sums are rather harder.

If you are a taxpayer, it's probably worth waiting until August and then paying off £40k incurring the 1% penalty, as that's probably less than you would be losing by keeping the mortgage and saving the money.