nationwide how / when to pay repayment part

winalot

hi there
hope someone can help total newbies to this mortgage / isa business have just got our first mortgage , it's nationwide , we went for the interest only as were told it was the same as repayment only we overpay or put the money into an isa - now am a bit worried as i don't think we've paid any of the repayment on our first month paid 1 month interest plus about half a month interest for the first month which i understand is normal. my OH says not to worry about this month but i dont' want to pay interest without breaking down the main cost so went into nationwide otday - the cahsier didn't seem to know but the lady at front desk went and asked mortgage advisor who apparantly said not to worry until next months payment
would this be right ?
had been intending to pay about £300 in (repyament part would be about £250 a month , interest £750 ) at the moment
would i be better off putting money into an isa in the current climate and paying that all off in 12 months (or at the end of the mortgage) and if so which isa - again sorry to ask so many quesitons but am very confused by the whole thing . our mortgage is 5.83 % 2 year fix and am not sure whether that would be considered a good rate . would really appreciate any pointers and sorry if questons have been answered before .

eamon

Hi There Winalot

So you have an "interest only" mortgage!

They are designed to provide you as the borrower with lower monthly repayments over the life of the mortgage. Except that you do not make any repayments on the capital borrowed. You should have an illustration from Nationwide that explains how this works. When the mortgage term is complete then you have to repay the capital. Quite rightly you are concerned about this now which is why you are thinking of using ISA's as an efficient means of saving up to repay the capital. There are a few things that you need to do

1. Arrange an appointment with you Nationwide mortgage advisor.
2. Get him/her to explain if you are able to make capital repayments at any time during the mortgage period.
3. Ask if there are any financial penalties for doing this.

If there are no financial penalties involved then it boils down to mathematics e.g. if the interest on the mortgage is more than the interest payable on the ISA then there is little point in saving via an ISA, put your savings against the capital and make sure you tell Nationwide that you want tho pay against the capital borrowed. This will reduce the time, amount borrowed, and the amount of interest that you will pay over the life of the mortgage.

If there are penalties (you are in a rate fixed for 2 years) then using an ISA to save with is a good idea.


By the way 5.83% isn't too bad. I'm sure others have secured better deals. My first mortgage rate 18 years and 3 houses ago was circa 11% and did reach 14-15%

Hope all that helps

Eamon

Sibacky_2

Hi Winalot.
I'm no expert on mortgages but have been in a similar position to you.
If you are on interest only you will not - and dont - have to pay ANY of the capital part. I understand that you want to but it doesnt matter if you dont as they wont expect any of the capital paid back until the end.
If you intend to overpay I would check that you are paying off the capital part and not just overpaying on the interest you owe.
I imagine overpayments are OK on your fixed rate?
I have had a half and half mortgage with NW for four years. 60k interest only and 65k repayment but have sold my ISA (a couple of weeks ago - phew!) and am converting to a full repayment.
I think the basic figures are that if you can get an ISA paying a higher tax-free percentage than your mortgage rate than you are onto a winner? Possible with a cash one but a gamble with equities.
My ISA has done well but I think the markets are in for a tough year so paying it into the mortgage instead. If you are starting out though, the worse the market gets in the short term, the better as 'when' it recovers you will be gaining at a much faster rate then those who have seen big losses which they hope to recover.
Dont know if thats a help - there are plenty on here who will be more useful I am sure - good luck!

dimbo61

sibacky very good timing on selling the ISA,s as £65 billion wiped off shares
on monday !!!
as others have said see the nationwide mortgage adviser and find out what you can overpay each month.
try and build up at least six months worth of savings in ISA,s ( cash ) to cover emergencies ( boiler blown up, car breakdown etc ) and pay rest off mortgage each month. good luck with new home !!

winalot

hello all
thanks very much for your replies and good wishes, really appreciate it.