Interest only mortgage question

Julie67

I have just realised we are on an interest only mortgage which was fixed for 2 yrs and finishes on 28th September. When the interest rate drops to 3% above base rate so it will be 3.5%. Should I try and remortgage away from interest only as I am not sure what happens when you finish paying after 25 yrs. How does the loan get paid off. I know I should have asked these questions beforehand, hence the debt:o Although I do have a good credit rating and am managing to sevice everything at the moment.

Mrs_Bumble

If your mortgage remains on interest only for the term of the mortgage you will still owe the original amount that you borrowed to the lender and will have to find it.

On interest only all you are doing is paying the interest on the amount borrowed.

You can speak to an independent mortgage adviser or your current lender to see how much the monthly repayments would be to switch to a capital and repayment mortgage.

The_White_Horse

its unbelieveable that people can have an interest only mortgae for two years, and not realise. and even more unbelieveable that the person doesn't know how the capital will be paid off. madness. how many are out there like this. there will be another massive crash in 15-25yrs when all these people default "er, i didn't realise i had to pay back the loan, i thought it magically disappeared"

_Andy_

The_White_Horse wrote: »

its unbelieveable that people can have an interest only mortgae for two years, and not realise. and even more unbelieveable that the person doesn't know how the capital will be paid off. madness. how many are out there like this. there will be another massive crash in 15-25yrs when all these people default "er, i didn't realise i had to pay back the loan, i thought it magically disappeared"

The problem is two-fold - 1) until recently lenders were too happy lending on pure interest only, 2) customers were so short-term focussed, e.g. "get me the lowest monthly payment

Julie67

Thanks for that White Horse, not very helpful. I readily admit I am dreadful with anything like this and as you can see have managed to get into an awful lot of debt. Thanks to everyone's help and advice we are trying to turn things around. I have had a bury my head in the sand attitude in the past and as Andy said just looked for the cheapest monthly payment. But we all have our weak points. I am looking to remortgage in September and will ensure I know exactly what I am getting into.

Peelerfart

Yes Julie try to move onto a repayment mortgage.It's paid off after 25 years by you repaying the loan.There are different ways of repaying the loan, and it sounds to me like you need to read up a bit.

Hopefully not to much of a problem as it's "only" been two years

The_White_Horse

i wasn't trying to be unhelpful - I am just amazed by it.

you will need a decent LTV to get a decent rate. your mortgage is 225k ish. what is the house worth?

Julie67

The mortgage is £210,000 the rest is a car loan. We have recently had it valued at £265,000 but I think achieving £250,000 would be more realistic.

ytfcmad

These people along with the lenders are complete idiots! That sounds harsh but what other excuse could there be for such naivety?

The unsecured level of debt is unbelievable as well, will the fairy's be paying that off as well?

The original post should be written into the history books as an epitaph to this last decade or so and taught in every school for years to come as the best example of peoples greed and stupidity.

ytfcmad

Julie67 wrote: »

The mortgage is £210,000 the rest is a car loan. We have recently had it valued at £265,000 but I think achieving £250,000 would be more realistic.

That does not stack up with your signature information???????????

blueberrypie

Julie67 wrote: »

The mortgage is £210,000 the rest is a car loan. We have recently had it valued at £265,000 but I think achieving £250,000 would be more realistic.

If you owe £210,000 on a property that is worth £250,000, your LTV (loan-to-value - the ratio of how much you're borrowing to how much the property is worth) is about 85%. You need to be aware that the higher your LTV is, the fewer mortgage products are available to you. Bearing in mind your other debts, you might find it difficult to re-mortgage. In that case you would have no choice but to continue with your current mortgage.

However it's likely that you are able to make payments towards the capital on your current mortgage - you need to look at your original mortgage offer and find out. If you can do this, you can reduce the capital in that way - but in your situation, if you have extra money that you could use to do it, you would almost certainly be better to pay off your other debts first, as they are likely to be at a higher interest rate.

It is good that you have pulled your head from the sand. I would recommend that you now look at the Debt-Free Wannabe board on this site - if you post details of your situation (a SOA, or Statement of Affairs) there, you will get good advice, and many suggestions for ways to improve your current financial situation.