Interest only mortgage for a few years til things get better??!!

thetigerwhocametotea

Advice needed please. Our house is valued at around £500,000 and we have a mortgage of approx. £230,000. Now here's the thing - we bought the house 3 years ago (new) and got a rate of 2.99%!!!!!!!! fixed for 3 years which comes to an end in Jan. Eeeek we are panic-stricken and don't know what to do next.

We have two sons at university for the next three years and then a 5 year break before the next one goes! Consequently our outgoings for the next three years are going to be massive - it costs us £800 a month for the two boys. This last year has been a struggle but next year will be an impossibility if the mortgage goes sky high too.

We are thinking of moving to an interest only mortgage for 3 years until the boys are finished uni so we can make ends meet. Is this a good idea or should we be looking to do something else? We intend staying in the house for about the next 7 years then downsizing quite substantially using the equity to buy something outright or with a small mortgage.

Any advice gratefully received as we are clueless!

rainbowtrout

Make them take out student loans? even if your income is high and they get no income assessed loan, there is no way you should be subsidizing them at the rate of 400 each a month.

thetigerwhocametotea

They do both have loans! They get the minimum loan. We only pay halls of residence fees for both of them - they come to £880 per month!

On top of that their fees are £1200 per year each - which they pay for themselves and they pay for everything else themselves - clothes, food etc.

I don't really think we spoil them!

space_rider

Can they find anywhere cheaper? I thought my daughters was high at £300 per month in Luton.

opinions4u

Advice to anybody taking a mortgage out:

If you've got kids (or one on the way) aim to be mortgage free by the time they are 18.

Because University costs are painfully expensive!

A mortgage doesn't have to be for 25 years!

opinions4u

thetigerwhocametotea wrote: »

Advice needed please. Our house is valued at around £500,000 and we have a mortgage of approx. £230,000. Now here's the thing - we bought the house 3 years ago (new) and got a rate of 2.99%!!!!!!!! fixed for 3 years which comes to an end in Jan. Eeeek we are panic-stricken and don't know what to do next.

We have two sons at university for the next three years and then a 5 year break before the next one goes! Consequently our outgoings for the next three years are going to be massive - it costs us £800 a month for the two boys. This last year has been a struggle but next year will be an impossibility if the mortgage goes sky high too.

We are thinking of moving to an interest only mortgage for 3 years until the boys are finished uni so we can make ends meet. Is this a good idea or should we be looking to do something else? We intend staying in the house for about the next 7 years then downsizing quite substantially using the equity to buy something outright or with a small mortgage.

Any advice gratefully received as we are clueless!

Are you tied in to your lender once the 2.99% deal ends?

How long for?

What are the penalties for escaping it?

ChasingButterflies

Hi there,

First of all I am no expert - just someone who came across your post...

Have you tried some of the online calculators that give you quotations to see how much of a difference going IO will make? Our mortagge is half of what yours is, we are on IO but if we had taken a repayment mortgage we would have only been paying around £100 pcm more...

Also we had to prove (to the underwriters) that we had the means to pay off the mortgage at the end of term. As DH has 2 pensions we provided the smaller of the two as "proof"

Do your children work to cover their fee's? I know it probably isn't what you want them to have to do but I think they need to find a way to earn enough income to be able to provide their own housing (and or find somewhere cheaper) Even if it is in the short term while you resolve your own difficulties.

If you also post a SOA on the DFW (debt free wannabe) board there are loads of helpful people who would be able to look at your budget and find ways to cut back - a different pair of eyes looking at things sometimes will spot something that you might miss. The OS (oldstyle board) also has a grocery challenge every month and is really useful for helping to reduce your grocery costs.

Also as opinions4you suggested you need to look at your current mortgage and see if there are any penalties that you may incur when remortgaging as that rate seems really low (and to my mind that means there might be a catch somewhere)

We had to remortgage earlier this year and it took loads of time to sort through so if you are going to remortgage I would sugest that you start looking at products just now.

I hope there is something useful in the above! and welcome to the forums.

thetigerwhocametotea

Thanks for all your replies.

No, we are not tied in after our fixed rate of 2.99% ends at the end of March (I thought it was January but on checking it's actually 31st March).

We have £270,000 equity in the house (value currently £500,000) at the present time and always intended to downsize substantially in the future so paying off the £230,000 mortgage would not be a problem - we would still walk out with around £270,000 (and hopefully more by the time we decide to move).

The 2.99% deal was an offer to entice you into buying a big new house! - mind you our rate at the time of the purchase was 3.99% with our previous mortgage lenders so we didn't think we were taking such a massive gamble. With hindsight we wouldn't have moved at all. In fact I remember at the time the lady at Charcol (who arranged the mortgage) saying it was a good indication of the way mortgage rates were going. Ha ha ha.

Yes, we have looked at IO v repayment borrowing the same amount and the monthly difference is approx £600.

As for our sons, one has a job and the other is looking - they ask us for nothing extra, work hard and are great lads, have never given us a day's worry (yet!!), and we don't want them leaving uni with massive debts.

I am getting the vibe that no one thinks IO is a good option?? Even in the short term?

We know our lack of money is temporary so we just need to know the best way to get through it and the options available.

opinions4u

If you genuinely cannot make savings elsewhere in life, then interest only is an option, subject to your lender allowing it.

If the difference in payment in £600 a month, you need to see this in exactly the same light as borrowing £7,200 for a year at the mortgage rate (or £14,400 for 2 years etc etc).

It will all have to be repaid one way or the other, with interest, sooner or later.

I dislike the idea from a personal preference point of view, but I can see that your 'lifestyle' has additional expense that won't be there at the end of current university courses.

Your challenge for the five year break between uni courses will be to fund the next one from savings and income, rather than relying on your mortgage lender to subsidise it.

dunstonh

The risk of going interest only is that there are always better things to spend your money on and coming back from interest only to repayment is harder than you think.

The life cycle of enjoying life today, getting married, having children and seeing them through to they leave home and then finding yourself in your 50s with only 10-15 years to build up a retirement fund of around half a million pounds if you want to live comfortably means that you could find any excuse not to stick to a repayment mortgage.