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Mortgate matters. Interest only. Overpayment. Can anyone help me work something out?

(14 Posts)
nkf Mon 29-Jul-13 09:19:17

In brief.
Have a high mortgage and have been on interest only for two years. Post divorce awfulness but it's turning right now.
Am due to remortgage. I don't want interest only any more but (due to an unexpected new commitment to my family) I don't think I can do it all repayment.
Is there any argument for interest only and then overpaying the extra directly off the capital? Or would it be better to do part interest only and part repayment?
How do I calculate what the mortgage would come down by in a year? That seems to me to be the sum I need to work out? Does anyone know?
Thanks in advance.

CogitoErgoSometimes Mon 29-Jul-13 10:37:45

I would suggest you talk to a mortgage adviser to get the maths right. There's also mortgage calculators like this one. Beyond the maths, a repayment mortgage would commit you to a fixed amount going off the capital every month. Paying lump sums off the capital relies on you being disciplined to get the same result. Repayment mortgages (depending on your LTV ratio) tend to offer cheaper interest rates than interest only.

nkf Mon 29-Jul-13 10:54:09

Thank you. I'm speaking to some advisers later this week. There is a big difference in interest rates depending on interest/repayment which is understandable but a bit of a bummer.

It's coming down to how I balance the best means of repayment with my ongoing family commitments. Medium term, I need to move. I know that but not this year.

I think you need to look at both payments, using the calculators. Are you disciplined enough to pay off the capital if you do go interest only again? It can come down quite quickly if you do overpay. However, if your plan to repay the capital is to sell the property that could backfire and you mght not have enough equity to afford a new property. At least with the fixed term repayment you have an idea of when you will own the property outright.

It's all down to your individual finances, character and the way your finances are likely to be in the future, i.e. are you on a career path that will open up big pay rises, or are you likely to remain on a similar salary for the forseeable future.

ILoveOnionRings Mon 29-Jul-13 11:18:53

We had an interest only mortgage and just changed over to repayment. We did talk to advisors but before this I looked at Martin Moneysavers and played around with their mortgage calculators to give me some idea of what they were going to be talking about. You can change interest rates, number or years, overpayment etc.

I found this useful as we had worked out how much we could afford monthly in worst case scenario (sp) eg one of us lost our jobs and then changed the number of years, ours is over 8 years with the free option of overpaying each month. The fixed monthly amount is not that much more than what we were paying for the interest only and endowment policy that we had running but we have had to take out Life Assurance as this was covered previously by the Endowment policy.

nkf Mon 29-Jul-13 11:26:56

Thank you everyone. I am putting figures into MSE. Think I will create a spreadsheet to make the comparison easier. It's a tricky one. There is only me and the children and I have to get it right.

nkf Mon 29-Jul-13 11:27:43

I will pay off by selling and moving. I can't have a mortgage this big till retirement. Too many other demands on my income.

ILoveOnionRings Mon 29-Jul-13 11:42:59

Martin money savers has a tool for this called Budget Calculator.

If you hover over the Income Family tab on the right then under Household Savings (red writing on the left of the new box) it is the first one on the list. It covers all sorts of things that you may have forgotten and it can be saved. We found this quite useful to

I will pay off by selling and moving. I can't have a mortgage this big till retirement. Too many other demands on my income.

This could cause problems because we don't know what is going to happen to house prices. Over the past few years, in most of the UK, they have barely risen at all, so unless you are in London or the South East this is not a good strategy. I've played with some figures, looking at the cost of an average 2 bedroom and a 3 bedroom local to where I live. The average cost of a small modern starter home 2 bedroom is £140,000 and a similar 3 bedroom is £165,000. For calculation purposes I've presumed a 100% mortgage.

To borrow £165,000 over 25 years at 5% interest would cost £965 per month in a repayment mortgage, or £688 interest only. The total paid in repayment would be £289,500 and you would own the house. The total paid in interest only would be £206,400 and you would still not own the house. If we allowed a conservative 1% growth in house prices, your house would be worth £209,506, so if you sold it and paid off the mortgage you would only come out of the deal with £44,506, which is not enough to buy a house and will be worth even less in 25 years.

You need to sit down and look at the various options - what sort of house would you want to buy when you sell up versus what you are looking to buy now and do a similar exercise. You also need to look at house price growth in your area.

nkf Tue 30-Jul-13 10:15:27

I know. It's barely a strategy. Mire a plan plus lots of hope. . Figures stack up a bit better than in your outline. The property is in.London and the loan to value ratio is fairly good. I take your point though. Mire number crunching needed.

Talkinpeace Tue 30-Jul-13 14:03:06

OP
On the Site stuff board there is a link to a spreadsheet I've put up that lets you compare the short and long term costs of your mortgage options ....
www.mumsnet.com/Talk/site_stuff/1715581-Cost-of-credit-cards-and-mortgages-the-spreadsheets

have a play

OnGoldenPond Wed 31-Jul-13 17:39:09

Would you even be able to get a new interest only mortgage? As far as I know the FCA will not allow lenders to make new interest only loans now without a recognised repayment vehicle, such as an endowment policy.

Talkinpeace Wed 31-Jul-13 17:48:38

and a good thing too IMHO!

nkf Wed 31-Jul-13 18:52:54

There are not many of them for very good reasons. But it seems it's doable.

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