Our interest-only mortgage has dropped - what should we do with the extra money?

[BEAUTlFUL]

Our interest-only mortgage has gone down with every base-rate cut, and is now £750 cheaper every month. for some reason, this fills me with fear!

What should we be doing with that extra money - paying off some of the capital? (We can do that without any charges.) That would mean we don't get as screwed long-term if the rates start climbing again... am I right?

That would be better than just saving the difference, wouldn't it? Would it?

Neither DH nor I are very good at money, so any help would be fab.

That is what I would do - yep!

There is no point losing an amazing tracker deal to go on a higher rate mortgage to get a repayment if you can pay off the capital now with good tracker rate. I do think you need to get a repayment mortgage at some point though just have a means of repaying your mortgage when it comes to an end.

If you can't afford to have a complete repayment mortgage (and don't forget to factor in the inevitable interest rate rises into your calculations) you could even leave some on interest only and some on repayment. That would keep the costs down for a while but allow you to make inroads into the debt. We have done this too.

We are in exactly the same position as you actually. DH is self employed and so am I, sort of (trying to get a business off the ground). If you have been self-employed for a while and have a proven track record then it shouldn't be a problem to get a decent mortgage deal although it might help to get a broker to unearth the good deals.

Thank you all so much!

Niecie, how do I switch it to some interest-only, some repayment? (I guess I should just call the company and ask them... )

also... Is the repayment vehicle something that we could find ourselves, or would an IFA be invaluable in getting a good one? In which case, am I looking for a free IFA who just gets his money as commission from the people who provide the product?

The repayment vehicle could be as simple as just overpaying on your current interest only deal assuming that you are able to pay capital off in that way. If this is the case, you don't need a repayment mortgage.

You could save money separately if you want but the problem with that is that you will still be paying interest on the total balance. However, in the short term that wouldn't be significant anyway. The important thing is that when the loan finishes you have the capital available somehow.

You could just pay interest only and rely on winning the lottery if you want but personally I would prefer a bit more certainty!

I suppose that a repayment vehicle is better than just overpaying, because the value of a proper vehicle (like investments) has the potential to rise, meaning we'd have money left after repaying the mortgage? Whereas just overpaying means we'll pay off the exact outstanding amount, with no added benefit.

I know investments can also go down, too.

Hmm. We are planning to move next year so will need a new mortgage then. Oh God. I feel stressed again!

Well it depends on the terms of your mortgage. If you overpay and pay off capital then you will pay interest on a smaller amount.

If you are going to get another mortgage in a year then you just need to save the £750 into somewhere or pay off some capital and worry about it then. It won't make much of a difference in that time frame, especially with interest rates this low

Beautiful - you can just ask your mortgage company. They can only say no!

I suspect they would make you renegotiate the deal rather than let you switch in the middle of a particular tracker term iyswim.

I was thinking more when you come to renegotiate at the end of the tracker you could think about the split. Obviously you will have a better idea of prevailing rates at the time and what you could afford then.

We used a mortgage broker rather than a general IFA to sort out ours out (although between him and Abbey they screwed it up but that is a whole other thread). They have all access to most of the mortgages available and don't try to sell you a pension whilst you are at it!

Ours charged an arrangement fee but there is no right answer to whether this is better than the no-fee way. It depends on whether you are happy to pay up front but get a better mortgage deal as the advisor choses the absolute best for you or whether you want to keep the fee (which is usually £200 plus) but maybe miss out on a better mortgage than the one you are offered because the advisor is worried about his fee.

most abnks and building societies will give investment reviews free of charge - they'll be tied in to their own invesment provider but it's free and if you book a few and see who you "take" to and go with them.

Just out of curiosity, how many of the doom mongers on this thread plan to be in the same house in 25 years time?

Is it relevant whether you are in the same house or not? Ultimately if you don't build up equity it makes it rather difficult to move up the property ladder and surely you want to own a house outright eventually?

Are there doom mongers on this thread?

I thought we were all pretty happy that some of us at least are benefitting from the current low interest rates.

I would move house now if we had the money and the market wasn't so down so no I don't plan to be in this house in 25 yrs time.

i am in my "forever house" so thrilled with low tracker rate as have managed to knock off £8000 off total mortgage in last 4 months - if ( and i know highly unlikely) rates stay around 1% and we continue ot over pay we will knock about 9 yrs off a 25 yr mortgage - flipping marvelous i say.