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.

More borrowers turn to interest-only

More borrowers are switching to interest-only mortgages to reduce their mortgage repayments.

Data from the Council of Mortgage Lenders showed around 24% of first-time buyers were taking out interest-only mortgages.

Many borrowers were taking out interest-only to reduce monthly bills.

A few words of advice from an Independent Mortgage Adviser ( i.e me, the blogger )...

Moving to interest-only repayments on your mortgage will help reduce your monthly costs.

It will be tempting for the 1.4 million borrowers whose fixed-rate deals are coming to an end this year. Many of them are on deals as low as 4.23% and with the current average fixed rate of 6% they face serious payment shocks.

However, borrowers may be storing up problems for themselves and should consider the move carefully.

However tempting switching from repayment to interest-only may be, unless borrowers have plans in place to eventually repay their loan they may be simply storing up problems for the future.

Getting to the end of the mortgage term and still owing the initial debt would be disastrous.

Think very carefully before making such decisions. Better still, talk to me and we can discuss your options fully, without obligation and without pressure.

After all, that's what I've been doing for the last 27 years !

As always, if you have any doubts about your current or proposed situation, and want to contact me, just click the link to my website on the right hand side of this page to get my contact details.