Mortgage advice

Were you not sold an (ahem!) endowment policy? Were you offered any other type of savings/investment product when you signed up for the mortgage. Have you got life assurance - in case either of you dies? If not, whose going to pay the other halves part of the mortgage if anything should happen.

Of course, you don't need a savings/investment product - assuming that property values increase 10 fold over the next 16 years, you can simply pay the capital (mortgage) off and reap the benefits of any built up equity in the property. That's all of course, if house prices continue to rise exponentially in the future.

I hope you have it all signed and sealed about who shares what in 16 years time - especially as daddy will be an OAP, and you wouldn't want to make him destitute by stealing his pension - would you?

In message , Ben writes

When you sell, you still owe what you borrowed, and this is taken out of the sales proceeds. If there arent enough, you have to find the difference, otherwise the lender wont release the charge, and you wont be able to sell.

Having said that, over 4 years, you wouldnt have paid much of the capital back, so you would be in a similar position, (slightly better off).

You can save the money in a variety of ways - I think you can get around

5% in a Savings Account at the moment, (although this will be taxed).

Alternatively, your lender may allow repayments of capital, which would reduce the interest payment and the capital. The beauty of this is that the interest rate saving is not taxed, so it's like investing tax free.

Many people are stuck if they cant sell their property for as much as they paid for it - it's part and parcel of property ownership. However, over the past 40 years or so, property prices have risen quite dramatically so, if they were to continue to do so, any fall in value will be followed by a rise in value to more than you paid - i.e. you have to wait, possibly for a few years. (This may not happen, but so far so good )

FYI, I have got several properties, all funded by interest only loans.

They won't give you a 25 year repayment but will give you an interest only mortgage?? Sounds very odd.

Sounds like a good rate, about 3.8%? Is it a short term discount with redemption penalties?

If your mortgage has no redemption penalties you could just use the extra cash to pay down your mortgage. Check that they give interest credit straight away though. Although with a 3.8% mortgage rate you're probably better off saving with an ISA...

Good idea. Remember the difference between the interest only loan and the repayment is about the amount you really need to save if you want to pay off the mortgage in the term.

Yes. You could use an ISA to get 3000 of saving tax free per year, or 7000 if you want to risk an equity ISA.

Yup, and also of course even if you have paid some capital off but house prices go down, which many people are predicting. IMO if you intend moving after 4 years and are worried about getting stuck due to negative equity, you shouldn't be buying. If you don't mind sitting out any slump in house prices and are confident you can afford the mortgage, you should be OK.

It depends on what you mean by "much".

It seems the loan is 109,500 (114,500 - 5000 deposit).

If the repayments are 600.00 over 25 years, this equates to an interest rate of ~ 4.50% p.a.

For a 25 year repayment mortgage on that basis, about 10,000 of capital would have been paid off after 4 years.

If the same mortgage was over 16 years, the monthly repayments would be ~

800.00 per month, and about 20,000 of capital would have been repaid after 4 years.

Thank you for all the helpful replies.

I've not read the mortgage agreement yet - will get the details.

Yes they offered us a tracker mortgage over 16 years, repayments were higher and we can't afford that - they go up after first year and up again I think.

I am interested in the "redemption penalties" - and "interest credit". What's this about?

Is it possible to pay the lender more each month and the payment minus the interest pays off the capital?

Thanks again..

You don't have to have an all interest-only mortgage or an all capital-repayment mortgage. You can have some of one and some of the other within the main mortgage. If you had some on a capital-repayment basis with the total monthly bill within your budget you would effectively be getting a tax free deposit account at mortgage rates - although a cash ISA might be marginally better (but limited to 3,000 p.a.). So you wouldn't need to set up some form of separate savings account, unless you wanted to speculate to accumulate and accept the attendant risks.

Rob Graham

"Flexible Mortgage" or "Offset mortgage" or "Current Account Mortgage" are terms to search for - the latter two allow you to reduce interest payments by holding savings in the mortgage account (or offsetting them against it) hence reducing the interest bill.

Paying more each month often doesn't work, as they may only recalculate the interest annually so the money sits doing nothing for up to 12 months. Check the small print.

Phil

Money they may charge if you pay the mortgage off early, or make overpayments. Some mortgages give you a short term discount on the rate, and want to claw the money back from you so don't like it if you pay it off early/move it/make overpayments.

Some lenders charge you interest on the amount you owe at the start of the year for the whole year, so if you pay some of the mortgage off mid year they don't reduce the interest they are charging you. If this is the case, you shouldn't make overpayments during the year, you should save them in an interest paying account and pay a lump sum just before the end of the year. The year end being the date they send the annual statement, not necessarily 31 Dec.

Nearly always, subject to above.

In message , Doug Ramage writes

I know

Not much

Not bad

My only thoughts are that its a lot of money for a flat. Is your dad so keen to get rid of you from home to risk debt and negative equity?

Lot of money for a flat?

It's a 2 bed newish flat in Hulme in Manchester, which is quite up and coming, and 115 k for a decent sized flat in this location is quite good really

I will have a good read of the mortgage agreement and get back to the group, as I don't understand most of it!

Thanks.

In message , Ben writes

Sounds there or thereabouts to me, and this was my patch until a year ago.

God yeah its LOADS of money for a flat. You can buy a whole house elsewhere in the city for that much.

If you *need* to live in Hulme though.

TBH get yourself over to housepricecrash.co.uk and see if you think that flat will be worth less in the next few years.

Also you can check out how much the person who you're buying it from paid for it.

You're 19? Do you *need* to buy a flat right now? Why not save up and get yourself a huge chunk of deposit. Have some fun renting with friends and enjoy yourslef. A mortgage is a big responsibility.

Also have you done a realistic income and expenditure sheet?

Do you know how much water rates, council tax, heating, electric, tv licence, phone bills, etc etc etc cost for you living on your own?

Then add in food, laundry, sky tv etc.

You also need money to buy furniture and kitchen appliances and other household bits and bobs.

You also need to know how much the annual service charge is. How new is the block? Is it in need of any attention?

Do you like going out? Will you be able to afford to go out still?

Write yourself out a sheet and do the ins and outs of the money - if you haven't already.

You might decide that you can wait a few years.

Sorry if I sound like I'm being an old nag but if you haven't worked out the finances of the situation properly and can't afford it then you might be dropping yourself and your dad in the ^*$£.

The average age of a first time buyer at the moment is mid 30s I think. That's because house prices are way too much!