Interest only warning

I saw this interesting article today, so I've copied it verbatim for your reading pleasure !

Interest only warning

* 23 per cent of UK mortgage holders on interest only mortgages
* Switching to capital repayments on existing terms could cost as little as £25 and save these borrowers around £40,000 over the life of their mortgage


Lenders have severely restricted access to interest only mortgages, however research from moneysupermarket.com indicates 23 per cent of mortgage holders are currently only paying off the interest on their mortgage*.

Analysis from moneysupermarket.com shows with mortgage interest rates having fallen dramatically over the last 12 months, the move to capital repayment with their current lender on the same terms will only cost around £25 and current interest only borrowers will see their monthly repayment increase by around £50 per month more than they were paying 12 months ago. Over the 300 month life of the mortgage, this switch will save approximately £40,000**.

Moneysupermarket.com, said: "It is encouraging to see lenders restricting access to interest only mortgages, but this might be a case of after the horse has bolted. Our research finding that 23 per cent of mortgage holders are still only repaying interest on their mortgage debt is deeply concerning.

"The fall in the Base Rate has meant that many people on tracker and variable rate mortgages have seen their repayments plummet, but whilst the initial monthly saving may seem attractive the borrowers really taking best advantage of low rates are those using the opportunity to repay more of the outstanding debt on their home. Unfortunately those currently on interest only deals are by the nature of the arrangement not paying off any of their capital and, without the aid of a regularly reviewed repayment vehicle, are setting themselves up for a bill for their full at the end of the life of their mortgage.

"If you are currently locked into an interest only deal the fee for switching to capital repayments with the existing lender is usually only about £25, and so in most cases you should take action immediately."


** Figures based on £150,000, SVR mortgage with C&G SVR which was 5% December 2008 and 2.5% in August 2009, whereby:

* Customer has a £150k interest only mortgage in Dec 08 and paid £625 per month.
* Interest rates have come down dramatically so their payment has come down to £312.50 and the customer saves £312.50 per month
* A move to a repayment mortgage would cost them £678.45 per month and save the £40,125 over the 300 month course of the mortgage.