Switch to interest only for two years?

Katy_123

Hi all - myself and my husband are in a dilemma.

We need to pay of some debts so that our monthly disposable income gets back to a level that works for us! We were trying to sell the house and use some of that capital for this purpose, but the current state of the market won't allow this.

Plan B is to switch to an interest only mortgage for two years. This will halve our mortgage payments and free up cash to pay off a couple of credit cards. It will also mean less pressure on monthly outgoings, as we are hoping to start a family this year, and my maternity package would make things very tight if our mortgage stayed as it is at the moment.

We would switch back to a repayment mortgage at the end of the two years. In two years time theoretically we will be in a much better position to overpay on the mortgage, as I should have been promoted due to becoming more qualified, and will also be entitled to bonus payments.

The plan is then that my husband stays at home with the family, and I go marching up the career ladder!

Would appreciate people's thoughts on switching to interest only in order to free up cash to pay off debts, and as a short term lifestyle solution.

I should mention that our credit score from years ago is not good, therefore switching to interest only credit cards, or a paying off debt with a loan is not an option. Also I do not want to consolidate again. I have been doing that for years,and that is partly why we are in this mess!

Many thanks in advance.

Katy

carlos700

We have done this for the same reasons as you ,we did it a year ago but i must say i still worry alittle as i thought we will go interest only for a year or two but i think its going to end up longer for us .The idea was to pay off credit cards and get our selfs straight but things keep cropping up like car breaking etc and still our money goes no where even though we are too much better off than we used to be .I think we will have to stay on interest only for 5 years but if the interest rates stay low we may be debt free in 2.

Its your choice only you can make that choice but id say it was the best thing for us at this time as we have just started a family too and the last thing you want is to worry about money when your children are so young .

Katy_123

Thanks Carlos - it's great to hear from someone who has been in the same situation.

Katy

fluffyb

Hi Katy, we have just done this as well just 2 months ago. We have said it will be for a year or two until my work picks up again [I'm self employed]
Realistically, I can't see this happening though and fully expect us to remain on interest only until my hubby retires in 3 years time. Since our mortgage is until hubby is 70 :eek: we plan on downsizing in 3 years time when hopefully the last of our children have flown the nest. Hubby gets a good lump sum when he retires so although I hate not paying off the capital now, we do have a 'contingency plan' and the lump sum and equity will buy us a smaller place.

It is all down to individual circumstances, but I would say it is the best thing we have done. It has reduced our mortgage repayments from £1900 pm to just £1023 :T :j Like you, this means we are able to not only pay off more on our credit cards per month, but for the first time we are actually manage to save a little each month :T

samandmillie

I too am thinking about switching to interest only. Could anyone recommend any lenders that offer this type of mortgage or where I could learn more about them? Any ideas what I'd save? My current repayment mortgage is aprx £800/mth on aprx £175k mortgage.
Thanks

feisty1

speak to yr existing lender

itsakidsworld

I think it is a great idea to switch to interest only in order to help you clear your credit cards. forget about a time though as this will put you under pressure. Just pay what you can and what the balance drop!!

Card charges are much higher and so it makes financial sense.

Just don't fall into the trap of going back onto capital & interest and then taking out more loans on the credit card!!

If you can remove your credit card debt and then pay off like mad whilst mortgage rates are low you could be in a nice position by the time rates start going up again.

Good luck

Nonshy

one thing to be careful of is when you switch back to repayment... get a quote on what paymets would be in 2 years because it is shortening the time you have to pay the mortgage when switching to interest only for 2 years... depending on size of mortgage and remaining term this could be quite a jump

dimbo61

The question is whats your LTV ( loan to value ! ) if its already poor ie 90/95% then your lender will more than likely say NO to interest only mortgage as your LTV will only get worse in a falling market.
You need to speak to your lender and take a long hard look at your finances !
spending more than you earn before having kids is a one way ticket to becoming,
HOMELESS

hopefulfooluk

samandmillie wrote: »

I too am thinking about switching to interest only. Could anyone recommend any lenders that offer this type of mortgage or where I could learn more about them? Any ideas what I'd save? My current repayment mortgage is aprx £800/mth on aprx £175k mortgage.
Thanks

Probably won't save that much to be honest, maybe £200-£250 if you're over a 25 year term.

Beware your lender won't insist you take on a whole new mortgage if you then decide to go back to capital repayment - I have heard of some that do, so you may face redemption penalties when you decide to go back, and you may no longer be able to access your current deal.

£800/mo on a £175k mortgage actually sounds very reasonable to me - I am paying £1150ish/mo on a mortgage of that amount. 6.49% fix - one year left.

asandwhen

We did the same last year (June) with Chelsea BS - they charged us a £75 admin fee to do it and said we can go back on repayment anytime (for another £75 admin fee).

They also said we can make the mortgage longer to make the payments the same as they were before for an admin fee of £125 (i think)

We have managed to pay off all our debts by doing this and are looking to go back on repayment in about May.