How Does This Mortgage Sound?

keithmdw

We are FTBs so are very new to all the mortgage and homebuying stuff.

I am very good (I like to think) with finance matters so understand most of it.

We have made an offer on a property (waiting for acceptance), and have a mortgage approved in principle from our bank (HSBC - they seemed the best on raw figures and we bank with them).

Just wondered how the following deal sounds to you more seasoned buyers and experts out there? We are waiting for paperwork to sign on the dotted line when the offer is accepted.

My fiancee is a graduate so we qualify for 100% mortgage of £90,000 over 30 years.

On HSBC's HomeBuyer Mortgage (where the 1st 3 years are interest only and the next 27 years are capital).

Fixed Rate of 5.49% for 3 years, then variable (currently 5.75%). APR equivalent of 5.9%.

1st 3 years payments are lower because of the interest only aspect and then rise when the capital kicks in, but that is good for us as it gives us lower payments for 3 years.

Fees are £399 (booking fee), £135 (valuation), and £30 (completion).

There is a 1% early repayment fee during the fixed period if we pay more than 20% of our normal monthly payment.

We are happy with the figures, and of course after the 3 year fixed period we can always move or renegotiate to get a better deal.

Fairdo_2

If you are happy with the figures then that is half the battle.

I would be wary of the fact that the payments are Interest Only for the first 3 years. and then you have a further 27 years to go afterwards.

I would say that you have to consider very seriously, if you could not afford the monthly payments at the moment, should you be borrowing so much?

If either of you are on an accelerated scheme at work, meaning your income will rise dramatically during that time then this can be a good idea. However, don't be lulled into a false sense of security. Your payments will increase in 3 years!!!!

Spendless

keithmdw wrote:

On HSBC's HomeBuyer Mortgage (where the 1st 3 years are interest only and the next 27 years are capital).

We did this but over a 25 year term. It suited us as we needed to move to a bigger home but my house we lived in was then in neg equity. Having the lower payments for the 1st 3 years helped us. I packed in my part-time job to have a second child.

We were lucky that house prices rose so that I could sell my old place for a profit and also hubby had a couple of pay rises.

I suppose it depends on where you see yourselves in 3 years time. For example if you intend having children around then, then you might be managing on only one income for 3 of you and your mortgage payments will be higher.

keithmdw

It's not that we can't afford the payments after 3 years, but it gives us that extra cash in the first 3 years when we want to buy furniture, decorate and things like that.

Fairdo_2

No problem then. As long as you are aware of the full picture.

As long as you can see the possible consequences, then it can be suitable for some people.

meanmachine_2

keithmdw wrote:

It's not that we can't afford the payments after 3 years, but it gives us that extra cash in the first 3 years when we want to buy furniture, decorate and things like that.

If you're happy with it, then fine, but...

A 30 year mortgage is to be avoided if at all possible.

If you can even scrape together 5% of the loan then you can slice 1% of that rate immediately. I wouldn't want to pay less than 4.5% interest on a fixed mortgage.

Why don't you look at discounted mortgages? You are locked in to a higher rate once the discount ends, but at least you'll be starting off with a repayment mortgage.

Anyway, you seem sensible, so you should be fine.

MarkyMarkD

It's not that bad, given that it's 100%, but the points made above are all sound.

Paying interest only is a slightly devious way for the lender to make the payments seem less bad, if you compare with another lender on a proper repayment basis.

The rate isn't very good compared to the best 2-3 year fixed rates, for people with a 5% deposit.

The fact that it's interest only means that you won't have dented the balance by three years, so if house prices haven't risen and you've still not saved up the 5%, you won't be able to remortgage to a decent rate.

YorkshireBoy

meanmachine wrote:

I wouldn't want to pay less than :eek: 4.5% interest on a fixed mortgage.

Are you saying you'd turn down a 4.25% deal?

MarkyMarkD

I noticed that, but thought I'd keep quiet for a change, YB!

mummytofour

Well, I think if I were in your situation then I would want to start paying off the loan as soon as I could, also pay off as much as you can too.

The more you pay off and the sooner you do the less intrest you pay in the long run.

Also the more you pay off now the more flexible you can be with your finances in years to come.

cheghead

bad idea imho. if u want furniture etc just put it on 0% credit cards. Much better deals for mortgages out there. (First Active or A&L or Northern Rock to name just a few)! Get the mortgage paid off as quick as possible. You'll be amazed at how much interest you're paying back.