Full Steam Ahead- My Mortgage Is All Sorted, But Shit Got Complicated

So much has happened; it’s been like a rollercoaster ride. However, things are finally back on track, kinda. It was all pie in the sky for a bit because Northern Rock required further documentation before they were willing to offer me the mortgage I wanted. After providing Northern Rock with everything they required I soon enough received the offer I was eagerly waiting for. The next step was to wait for the agreement to come through the post in a contract form.

This is where shit got complicated- Interest Only Vs Repayment Mortgage

As expected, the mortgage offer came through the post. However, after having looked through the arrangements, I wasn’t too pleased with it. It’s not anyone’s fault, besides from my personal indecisive nature. Basically, I got an offer for a 5.59% interest rate policy, with a repayment payment plan, as as planned.

It worked out that I would need to pay approximately £880 per month to cover my mortgage payments. I was only expecting to get £775 from rent, which meant I would be paying £105 out of my own pocket. The terms were all explained to me by Lee, my broker, but for some reason I didn’t think of it as a big deal before. But seeing the agreement on paper made me think a little deeper, then I asked myself the question, “do I really want to pay that much out of my own pocket?” The answer was obvious…”FUCK NO”.

I made a conscious decision to change my mortgage offer to an Interest only policy. This would cause a drastic decrease of my monthly mortgage payments as I was no longer going to be paying off the capital of my loan; I would just be paying the interest. I really didn’t want an interest-only mortgage, because I wanted to reduce my capital.

As a result, I made a compromise with myself, my plan was to change to an interest-only policy and then later (perhaps next year when I have more funds available) reduce the mortgage with a lump sum and then change it back to a repayment so my rent would cover the repayment payments. If I reduce the capital owed, the interest would also decrease.

I called my Broker and told him the situation, and he said changing to Interest only would be fine. Basically, when you get an offer through, that’s all it is, “an offer”- you’re not committed to the policy at all. Moreover, changing your agreement to internet only is easily done- you’ll also still be entitled to your initial agreement, and the interest rates you were given initially will remain the same. That’s good news for me, because since I got offered my initial repayment 5.59% interest rate, rates have gone up significantly.

This is vital information for anyone having second thoughts about their mortgage agreement. Basically, remember these things:
1/ when you get a “Mortgage offer”, you’re not committed to anything. It’s just an “offer”
2/ you can change from Interest only to Repayment, or vice versa without losing your initial policy.
3/ if you’re not happy with your offer, DO NOT commit to it. Do something about it.

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Talk / 1 Comment left so far

Phil Martin wrote this on 2009-12-03 22:03:55 Even interest only mortgages pay themselves off over time as inflation erodes the value of the debt to a negligible amount.
In 25 years time the capital part of this mortgage will be the equivalent value of a cheap second hand car, at worst. 1

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