Mortgage Help - Repayment or Interest Please Help.

mikon

Hi hope someone can help.

Currently I have a mortgage with Northern Rock which is due to end its fixed term of 4.62% at the end of this month I will then go onto their standard variable rate.

50% of the mortgage is repayment and 50% is Endownment. If I stay with Northern Rock my monthly payments will increase by approx £180.00 per month. I have 5 years remaining on the term.

A suggestion that Northern Rock has made is to convert the 50% of the Repayment mortgage into Endownment possibly over the short term or long term. This would reduce my monthly payment to £330, currently £670 after June 2008 this will increase to £850.00. However I must ensure I have adequate insurance cover to pay off the mortgage at the end of the term.

I understand that with the endownment mortgage I would need to take out insurance (not sure who with or what type) to ensure the £40,000 is covered, but surely this has to be a better financial route for me after all I could pay a monthly insurance premium of £300 and still be financially better off.

Would it be wise to invest in an insurance policy or ISA or something else?

Would this be a sound route to take?

The term of my mortgage is only 5 years so not sure if this would impact on insurance policy.

I have looked at other mortgage lenders HSBC etc but they are all charging very high acceptance fees which I am reluctant to pay.

Could anyone give me their impartial view on wether the Endownment route is the best or is this just a pipe dream which I will regret later.

Any help or advice is much appreciated.

Mikon

Wutang_2

not sure endowments are still avaiable...

if you switch it all to interst only, this can be done on a shorter term basis where you are are literally not repaying the mortgage or you can set up a specific repayment vehicle (speak to an investment adviser).

Many people at the moment are having to switch on to interst only whilst remortgage rates are so high - either on a new product or on their SVR.

I wouldn't worry too much about the endowment stuff

happybroker

What are you trying to achieve with this?

Will the increase in payment cause you a major problem?

Can you not increase the term of the repayment element to reduce the outgoings?

You sound like you could do with some proper advice on this, speak to a good whole of market broker, ask friends and family if they can recommend one to you.

Not all lenders are charging high fees, the amount of money you owe at present is key to this. If it's not worth your while paying a fee why would you but if it is beneficial then why would you not. It's dead easy to "sell" a low mortgage payment but some one "selling" is not what you need, you need to speak to a properly qualified, experienced adviser.

All the best

druss

What are your priorities

1 Cheaper Payments
2 Mortgage finishing in 5 years.

If your mortgage finishes in 5 years because you are retiring then the savings based repayment option is risky, what would you do at the end of 5 years if it had not made enough to clear the 40k?

Would you prefer to pay the extra and have a guarntee that the mortgage is finished.

If the mortgage just ends in 5 years for no reason, you could extend the term to reduce your commited payments down but find a product that would allow you to overpay when your finances allowed to reduce the term back down again.

dunstonh

Over the short term involved any investment vehicle is likely to be higher in cost than a repayment mortgage.

neverdespairgirl

Wutang wrote: »

Many people at the moment are having to switch on to interst only whilst remortgage rates are so high - either on a new product or on their SVR.

The trouble with this post is that mortgage rates are, by any historical measure, not remotely high. Just higher than they have been in the recent past, that's all.

mikon

From the responses above I guess I need to qualify a few points.

My mortgage ends in 5 years and that will be the 25yr term completed.

My priority is to reduce my monthly payments.

What i am reluctant to do is extend the term of the mortgage I appreciate that would reduce the monthly payments but then your trapped in the market for an additional 5 or 10 yrs.

The interest only option seemed quite a good option because whilst i would only be paying the interest element of the mortgage, if i were to get an insurance policy that matured in 5 yrs and paid a monthly premium of £300 then surely that would give me a good enough return to cover the outstanding £40,000. and then my monthly outgoings would be £650 rather than £890.00 per month.

Alternatively do I do this for a short term of 1 or 2 yrs then hope mortgage rates have reduced and fixed rates are more competitive.

Is this high risk or not?

Any help or advice is appreciated.

Regards

Mikon

dunstonh

neverdespairgirl wrote: »

The trouble with this post is that mortgage rates are, by any historical measure, not remotely high. Just higher than they have been in the recent past, that's all.

Interest rates are just about at the typical norm at the moment. That is why people having problems now is so worrying.

happybroker

If you took £300 per month over 5 years with a compound rate of 10% you would get £24,176.20. 10% would be very, very optomistic.

switching to interest only for a couple of years will mean you only have 3 years in which to repay the £40k. If interest rates drop by 5% (which obviously they won't) that would mean £166 a month less in interest but around £450 per month more on reducing the capital balance in order to ensure the debt is repaid so it's a no brainer.

Your mortgage debt is not particularly high, the reason the payments are so high is because you are paying it off so quickly. The ONLY way to reduce your payments is extend the term which you don't fancy or run the risk of not being able to pay it off at all which I am sure you would fancy less.

"is this high risk?" you ask, switching to interest only is, yes. Extending the term isn't as you still guarantee the repayment of the loan (I am assuming here that you are continuing to earn after the 5 years are up).

You could check on the progress of your endowment, is it enough to cover the interest only element now? this would leave you enough money to throw at the repayment element but is something you would most definiteley need to take advice on.

If you are coming out of the rate with the Rock, look at switching for a better rate, get some proper advice.

Hope this helps, I know it's not what you want to hear but please be assured that it is much better that you get a straight answer.

mikon

Happy Broker

Thank you for the response and you have answered the question for me. I will continue to earn after the 5 years is up so it looks like the options are limited and the interest rate option will not give me the return I need to cover the outstanding loan of 40K. So I think I'll take your advice and probably extend the loan by 5 yrs.

Thank you to all who have responsed, and attempted to answer my question.

Regards

Mikon