Change mortgage to interest only to pay off credit cards?

akinyi

Hi there, my fixed rate mortgage with Halifax (5.99%) is due to end at the end of September 2009, and it will switch to SVR. I've got between 60-75% LTV in my property, and a mortgage of £146k. I also have credit cards amounting to a whopping amount, over £10k (I know, I know it's very bad of me... profit share didn't come through so plans to pay it off got scuppered). Credit rating is fair-good & my current debt payments are £895 mortgage plus £235 credit cards per month. I've had to take a 10% paycut at work although that is supposed to be reviewed every 3 months.

So I'm looking at my options for remortgaging, plus how best to clear my credit cards. Given that the SVR with Halifax is 3.5% I know I'll have a reduced payments. Given that over 2 years a repayment mortgage pays off about 4k capital, my current thoughts are to remortgage the 146k on an interest only basis 2yr fixed rate (e.g. HSBC 2.89%) which would be c. £350/mth mortgage, freeing up a minimum of £545 per month to plough into paying off the credit cards. Having taken the 10% paycut I'd prefer to reserve the current credit card repayments of £235 for my monthly budget (to avoid anymore credit card use!), but if it gets reversed then there'll be an additional c.£250 to plough in too. By my reckoning I can pay off the capital debt of over £10k on the credit cards in between 18-24 months, whilst keeping interest only payments for the mortgage covered during that time. Any surplus once credit cards are paid off will go into savings in that 2yr period. Then I figure I can overpay at the end of the fixed rate and/or switch back into a repayment mortgage and from then on be overpaying the mortgage as much as possible. Halifax have initially said they'd let me switch my current mortgage onto interest only if for a set period plus confirmed I'd move onto their SVR at the end of Sept 09. They also said they would increase my borrowing if I wanted. I haven't discussed anything any further with them yet.

My logic tells me this is a faster way of paying off capital debt, and I've reviewed it on the snowball calculator, which seems to make sense, but am not certain it allows for interest only payments on the mortgage.

I asked my mortgage broker about this, but he advised me to go for a 3-5yr fix at between 3.99% (3yr) and 4.89%(5yr) and remortgage for more capital to consolidate my credit card debt, paying the full £1135 per month, which I feel leaves me no room for savings or repairs. It seems to me that the broker's option is also going to cost me more in the long run and reduces my equity in the house (and therefore LTV).

I'm now feeling rather confused about the whole thing, and would be very grateful if anyone has any advice on this! Thanks

Trollfever

If you visit the Debt Free Wanabee Board they will advise against turning unsecured debt into secured debt.

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akinyi

Trollfever wrote: »

If you visit the Debt Free Wanabee Board they will advise against turning unsecured debt into secured debt.

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Thank you Trollfever, I can see that's not advised.

Does anyone have any views on what I do with my mortgage, or whether it's wise to switch from repayment to (fixed rate) interest only?

mirrorimage0

we just tried to change to interest only and was refused even though our mortgae is 87,000 and the house is valued at 230,000 and we have another property with a small mortgage and am planning on selling this in two yrs to pay off our mortgage, my husband also has a small pension, even with this in mind they refused us so its worth checking first if you can do it

akinyi

mirrorimage0 wrote: »

we just tried to change to interest only and was refused even though our mortgae is 87,000 and the house is valued at 230,000 and we have another property with a small mortgage and am planning on selling this in two yrs to pay off our mortgage, my husband also has a small pension, even with this in mind they refused us so its worth checking first if you can do it

Good tip, thanks mirrorimage Current provider said it would be possible in theory if I stayed with them on SVR at end of current fixed term, but I'll need to speak again with them once I've decided on a plan to attempt to follow and once I get to 3 months before end of fix (it's 4 months at the moment).