Hello all,
Just thought I'd ask on here as there seems to be quite a lot of knowledge on most things around these parts.
Looking at our mortgage, we are currently paying interest only so we are in a bit of a fantasy world, time-bomb situation. Really need to start repaying so just wonder if there is any advice on the best sort of mortgage to take out? We would have a loan to value of 43% so the amount won't be problem, just that the repayments are a bit scary compared to interest only!
We have been looking at moving house, but to get a similar sized one in a nicer area will quadruple our mortgage and leave me a broken man with just his bikes (what's left of them) and a guitar to entertain him (what else do you need?), so will probably consider staying, borrowing a bit more and doing some stuff on the house.
Any advice welcome!
Thanks.
If you're still in your thirties, consider extending the term of the mortgage beyond 25 years. This will obviously cost more long term, but might make things more affordable for now.
You'll get all sorts of advice on tracker / fixed / whatever.
I've always had a fixed, which may well have cost us but I like the stability. Having had parents who had a house repossessed due to sky high interest rates in the past, it's an emotional safety catch I'm willing to pay for.
Fixed rate deal for couple of years unless you have total faith in a great result from Brexit. Start paying off the balance ASAP. Interest only mortgages will be a disaster for many. Completely opposite opinions will be along soon.
Get a local IFA recommended to you. IMO, ours saved the (reasonable) fee we paid recently.
Get it on repayment asap. I presume you don't have a repayment vehicle? If not it isn't a situation that will get any better. Extend the term up retirement to make it more affordable. If the lender asks when you plan to retire say 75 and let them challenge you or they'll tell you the max term you can have. I'm a mortgage advisor btw and deal with a shit load of people with IO mortgages with no vehicle. If you are 65 with a mortgage it's bad, in your 30s or 40s not so much as you still have time to turn it around
If you are 65 with a mortgage it’s bad
Not strictly true - I have a mortgage that runs until I am 67 (50 yrs old now) but we have a nice size house and a LTV of around 30%. I could sell it and buy a smaller house just down the road and have no mortgage but in the longer term our bigger house will see a greater return (ie, a 100% increase in value of something costing £500k now will see a greater return that 100% of something costing £250k now).
I assume you have an endowment policy as well - if so how much of a shortfall will you have and when does it mature?
I'm in a similar situation (endowment supposed to pay out £45k, forecast to payout £25k and matures in 5 years), I actually had a second mortgage as well that's repayment (note to young self, putting a £35k car on your mortgage isn't great long-term :p ). Fortunately I still have a decent amount of equity.
I'm actually just remortgaging now (and switching to First Direct, 5 year fixed @ 1.94% I think, 15 year term). It actually means I'm paying the same (just for an extra 10 years), not including the endowment policy cost (less than £100 a month), although the second mortgage was at SVR so a bit of a saving from that.
I went for 5 years fixed as a I wanted some stability during Brexit and beyond (if the economy tanks rates could well drop again but I'd rather just have peace of mind). I'll probably pay off a chunk of the mortgage using the endowment after the 5 years (or blow it all on shiny things...).
I think I've been quite lucky (bought 20 years ago at the bottom of the market), I can't afford to move though without crazy mortgage payments (I still don't understand how people I work with, on less salary and with a family can afford repayments twice as much as mine...)
Just to play devil's advocate & bearing in mind I am generally a low-risk type person who has a repayment mortgage....
Could you not put the money you would be putting into a repayment mortgage into some kind of investment fund (probably not betting on horses or roulette).
If you were to re-mortgage for say 30 years interest only & then immediately also start saving the difference between interest only & repayment into a decent savings/investment scheme then as long as the return out-runs the currently low interest rate you might even be quids in, in 30 years time.
Returns can fall as well as rise, there are no guarantees, your house may be at risk etc....
Fuzzy- we had an endowment taken out in 1993 to cover £58k. When the shortfalls were predicted we swapped to repayment and kept the endowment running. Forecast values were in the £30-£35k range even recently. Was a bit shocked to find it matured a few months ago just over £57k.
We spent 10yrs on Intrest Only. Sounds daft but we planned it to coincide with having children. It allowed the Wife to stay at home, then go to uni & re-train after they went to School. It worked. My salary increased steadily & Wife is now full wage earning. Recently moved house but by heck did the new repayments come as a shock. 🙂
It was always at the back of my mind though, but it was something we had planned for. New morggage finishes the day I’m 65. But we are happy.
As stumpy says It's probably better to keep the mortgage as is and save up or pay it off. Most will let you overpay up to a point but you may pay off quicker saving and getting interest depending on the mortgage interests rate.
If you are up for the risk then you could invest in funds or something - share ISAs have a £20K a year limit.
Regardless of how you do it you need to start chipping away at the capital owed.
Saving and investing has inherent risks - after all that is precisely what caused the problems with endowment mortgages.
Moving to a capital repayment mortgage may well be a bit more expensive but at least you know you’ll have paid off what you owe.
Another potential option is a part repayment mortgage which, as it sounds, means you pay the interest and a bit of the capital but you still need a plan for the balance.
A good mortgage adviser will be able to give you proper advice on all options and an ifa also if you want to look at investments.
Personally I’d go for a straight repayment mortgage - least risk.
Thanks for the replies. I will definitely look into a repayment, but I am also going to look into sticking the money in ISAs, gaining interest and seeing if that will be better for us. Depends on interest rates as we are on a tracker-style thing, but I'll look into it. I find money dull, dull, dull.