Interest only for first 2 years??

truescot

Wife and I (and 2 year old with another on the way) have just had an offer accepted on a house. Various options of mortgages so I thought opinions would be useful.

We are porting a mortgage of 75k across to our new house which is on a fixed deal for another 2 years (4.99%).

We will be borrowing another 75k and would like the end of that deal to roughly concide with our current deal so as we can renew the whole lot as one in 2 years.

Due to wife's income being reduced at the moment, I am wondering about putting the top-up part of the mortgage on an interest only basis, to keep our payments lower for the first two years. After that, we can switch the whole lot onto a repayment again for the remainder of the term.

I get the feeling interest only mortgages are not advised by the good people on this forum, but I wondered what peoples opinions are on this compromise. It would appear to soften the blow of doubling our payments immediately, given our circumstances. In two years, wife will be back to work and I will be a millionaire. Well, not quite but my job is as secure as it is possible to get.

Thoughts?

herbiesjp

Are you sure that on the reduced income you now both have, that your lender will agree the porting and the extra amount needed?

A lot of people have come unstuck when trying to port -has the lender agreed this?

truescot

herbiesjp wrote: »

Are you sure that on the reduced income you now both have, that your lender will agree the porting and the extra amount needed?

A lot of people have come unstuck when trying to port -has the lender agreed this?

Yes, the lender is happy to lend us the extra. This is basically because my salary is much greater now than when we took out the mortgage and we have a large deposit from the sale of our current house. So, although wife is not working, our income is actually greater than when we took out the mortgage.

So on that basis, is the this a good idea?

_Andy_

Is the lender happy for you to go IO no the basis of just changing it to repayment later?

truescot

_Andy_ wrote: »

Is the lender happy for you to go IO no the basis of just changing it to repayment later?

I didn't realise this would be even be an issue. Surely i would just take out one product for two years and then switch at the end of the deal. Is there likely to be a problem with that?

_Andy_

Depends on the lender. Most lenders lend more responsibly now so would normally require an ISA/endowment etc to be running alongside.
What's the property value of the new house and which lender is it?

truescot

House valued at 210k, lender is Alliance & Leicester.

_Andy_

My understanding is they wouldn't do that as there's no repayment vehicle. Best to ring and check with them.

wendybird

We're currently with A&L and it wasn't a problem at all to pay IO for the first two years without a repayment vehicle (we invested the extra into doing the house up). But that was 3 years ago so things may have changed given the lending climate now. It is worth asking though.

Good luck!