Interest only mortgage

[dojo]

Currently on a repayment mortgage.

I was looking at the numbers and worked out that with an interest only mortgage I would save a hefty amount i could save this and then at the end of the year make an 'overpayment' and I would be paying off a lot more off the mortgage than I do via the repayment method.

Someone told me that to get an interest only mortgage you have to have 50% equity in the house but looking online on the price comparisons sites it seemed they were been offered at 20%...

We took out a 90% mortgage but we have repaid a bit and then value has increased so on a remortgage might hit 20%

Any advice??

[CarlosFandango11]

dojo said:

Currently on a repayment mortgage.

I was looking at the numbers and worked out that with an interest only mortgage I would save a hefty amount i could save this and then at the end of the year make an 'overpayment' and I would be paying off a lot more off the mortgage than I do via the repayment method.

This will only work if you grow the excess of the full repayment amount over the interest only amount at a rate above your mortgage rate.

[Sarnie]

dojo said:

Currently on a repayment mortgage.

I was looking at the numbers and worked out that with an interest only mortgage I would save a hefty amount i could save this and then at the end of the year make an 'overpayment' and I would be paying off a lot more off the mortgage than I do via the repayment method.

Someone told me that to get an interest only mortgage you have to have 50% equity in the house but looking online on the price comparisons sites it seemed they were been offered at 20%...

We took out a 90% mortgage but we have repaid a bit and then value has increased so on a remortgage might hit 20%

Any advice??

Your problem will be getting over the "Repayment Vehicle" issue.......they will not accept your proposal of overpaying at the end of the year, especially not at 80%.......

Also, why do you think you would be paying off a lot more of the mortgage by doing it this way?

[dojo]

Thanks for the replies.

My thinking (and I am new to this so bear with me)

On my mortgage (just under 5%) in the first year I only pay off 5-6k

Whereas an interest only (seem to be about 2.75%) would see me save 1k a month and therefore pay off an extra 6-7k in the first year...

Maybe I'm totally wrong.

[MrFox123]

Have you looked at an "offset" mortgage?

Any savings you have are offset against the debt. Therefore you don't have to wait until the end of the year to get the benefit.

[mark944gold]

dojo said:

Thanks for the replies.

My thinking (and I am new to this so bear with me)

On my mortgage (just under 5%) in the first year I only pay off 5-6k

Whereas an interest only (seem to be about 2.75%) would see me save 1k a month and therefore pay off an extra 6-7k in the first year...

Maybe I'm totally wrong.

You are wrong unfortunately, the repayment method does not affect the percentage rate of interest and since the mortgage market review you will not be able to get an interest only mortgage without a suitable repayment plan and even then only a few lenders offer them.

[halo34]

dojo said:

Thanks for the replies.

My thinking (and I am new to this so bear with me)

On my mortgage (just under 5%) in the first year I only pay off 5-6k

Whereas an interest only (seem to be about 2.75%) would see me save 1k a month and therefore pay off an extra 6-7k in the first year...

Maybe I'm totally wrong.

You will get exactly the same effect if you move to better rate repayment mortgage. First direct for example offer un-limited overpayments on some of their mortgages with no penalties.

You also need to check any penalty clauses for moving out of the current mortgage.

I have interest only but it was taken out years ago. We massively overpay every month - and now I have to avoid moving providers because I know I wont get that opportunity again.

[BoRED S2upid]

You would have to be very strict with saving and paying it off the mortgage every year and not being tempted to spend a bit on a holiday, car, home improvement etc.. Overpay instead.

[dojo]

OK - thanks for the replies.

Guess its a no for now and thinking about it I wouldn't be eligible for the low rate interest only mortgage and I'd end up with the same 4.7% interest rate I'm on now.

Guess the plan is to save and overpay where we can and try to get more equity to get a better rate when we finish our term.

[halo34]

Either save or overpay and work out what LTV you need to get a better deal - aim for that.

If you have overpayment penalties, stick it into an ISA or something until the deal is finished then you have the ability to reduce the LTV before going into a new deal.