Three years into Interest only Mortgage without repayment vehicle.

Barebear

I have a £68000 mortgage which I am three years into without having paid any endownment or other type of similar payment. I was waiting to have my debt problems sorted, which I'm glad to say, has now happened. (well, I've got them under control).

So now I need to look into sorting out a product to run alongside my interest only Mortgage.

Can you help.

Gorgeous_George

Depends on the mortgage interest rate. If is higher than a cash ISA will return, move to repayment. Otherwise use your ISA limit(s) first.

GG

Barebear

I've just had to renew my Halifax mortgage as the old discounted deal ran out and my credit score was poor. So I'm on a 3yr deal fixed at 7.5%.

Jennifer_Jane

How much are you 'allowed' to repay every year? Mine was 10% of the capital without getting hit by penalties. When you send your cheque ensure you ask them to set it off against the capital as otherwise they'll set it off against the interest.

Jen
x

Barebear

Jennifer_Jane wrote: »

How much are you 'allowed' to repay every year? Mine was 10% of the capital without getting hit by penalties. When you send your cheque ensure you ask them to set it off against the capital as otherwise they'll set it off against the interest.

Jen
x

Thanks for that, but is there not a cheaper way to do it. I calculated that it would take £257 per month for the next 22 years to pay it that way.

MartynwithaY

You could start paying into an equity (stock, shares, funds etc.) ISA to repay the capital.

Though this is riskier than over payments or a cash ISA as nothing is gauranteed!

Rabiddog_2

Why not pay £300 or £357 per month for as long as it takes.. considerably less than 22 years, maybe 15??

nrsql

Barebear wrote: »

Thanks for that, but is there not a cheaper way to do it. I calculated that it would take £257 per month for the next 22 years to pay it that way.

That's true but in 22 years £257 won't be worth as much.
If you keep increasing the amount in line with your earnings increase it shouldn't take anywhere near as long to pay off.

Especially if yoyu are young it's probably better not to stretch yourself too much but let wage inflation deal with it for you.

I wish I'd known enough when I bought my first flat to take an interest only mortgage - now I could pay it off without worrying and could have done with the extra money back then.

Tiddler_2

Speak to a broker and ask for a quote (kfi) on an interest only basis, and on a repayment basis.

Then compare total amount payables as a guide to how much your investment would have to make to cover the extra interest you would pay through having an interest only mortgage for the next 20 years or so.


An online calculator tells me that to achieve £68k over 20 years would mean investing approx £131 pm at a constant rate of 7% tax free.
So that would cost £1572 pa or £31440 over 20 years.

Interest only mortgage payments at 6% for the same period would cost £4080 p.a or £81660 over the term.

Total payable would be £31440 + £81660 = £113100.

A 20 year repayment mortgage at 6% over 20 years would cost £488 pm, which equates to £5856 pa or £117120

So a repayment mortgage costs around £20 pm more and would guarantee the mortgage is paid off, whereas the investment option is relying on you always receiving 1% more than you are paying on the mortgage for the next 20 years, which is probably unlikely.

I would choose a repayment mortgage, but it's all down to what risks you are prepared to take