Switching To A Repayment Mortgage From Interest-Only While Debt is Cheap
15 Dec 2008A few days ago I wrote an article on why I think Making Mortgage Overpayments While Debt Is Cheap is a sound idea.
A few moments after publishing the article I remembered that switching to a repayment mortgage (for those on interest-only plans) may also be a good option. At the time I was too lazy to revisit the article and add my extra thoughts, so I thought I’d just write a separate article when I had the time and willpower…
To get the lowdown on Interest-only and repayment mortgages, go here, Interest-only Vs Repayment Mortgages.
I won’t repeat too much of what I wrote in the Making Mortgage Overpayments While Debt Is Cheap article, because the principle is pretty much the same- as debt is becoming cheaper for those on tracker and variable rate mortgages, it’s a good idea to try and reduce as much debt as possible, before interest rates start rising again.
A great way to reduce mortgage debt is by switching to a repayment mortgage. If you’re one of those fortunate individuals that benefited from the recent 2.5% slash in interest rate cuts, then you’re probably saving a small fortunate each month. If it’s feasible, I would personally switch to a repayment plan and make that extra cash work hard. Your money will actually work harder if it reduces debt than if it’s tucked away in a savings account.
Most lenders will let you change to a repayment plan easily, but may charge a small admin fee. I remember when I switched to a repayment-policy from interest-only, my lender charged me £80. A bit cheeky, but worth the investment. However, I have a feeling a lot of lenders may ignore the fee.
Another, more flexible, option is to simply to make overpayments, as stated in my previous article. You can get in touch with your lender and setup a fixed monthly overpayment amount. It works like a repayment policy, but more flexible as you can easily cancel the overpayments if you’re strapped for cash. But if you lack discipline, and will most likely be tempted to cancel the overpayment plans at a drop of a hat, then switching to a repayment scheme maybe the wiser choice, as repaying the debt won’t be optional.
Has anyone switched to a repayment plan, vice-versa, or decided to make overpayments?
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I initially started this website because I wanted to document my every step from property idiot to property landlord,
in hope that people would find my site and help me along the way. I literally didn't have a clue about being a landlord
when I started this website.
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