Is it wise to go interest only for 6 months?

Photoshopguru

This is just a thought.. I've tried to do the sums, but with maths not being my strongest point I've probably miss-calculated..

I have a mortgage - rate of 5.99%, a fixed rate step mortgage with Abbey. It started out 3 years ago at 4.49% rising to 5.25% to finish on 5.99%. This rate ends in July, and I will go onto their standard variable rate (currently 4.25% - or it was when I checked last night).

I'm looking to save a few pennies because I have £4k of debt on a 0% credit card, and due to a complete mess up on my part £400 overdraft.

Switching mortgages isn't beneficial at present due to the exit fee - but if I change my payments to interest only (which I believe will reduce them to around £220 a month) this will leave me with around £300 a month - which I can use to clear my overdraft and credit card as quickly as possible.

Come July when I'm due to remortgage, hopefully the standard variable rate will be less than my 5.99%, or I'll get a rate less than my 5.99% - in which case I shall return to paying interest plus capitol, and hope to have payments around £450 a month.

Does this make sense, or have I not really thought this one through?

Many thanks

opinions4u

Going "interest only" is effectively borrowing money on your mortgage - the amount of capital that would otherwise have been paid off. Borrowing to repay debt is robbing Peter to pay Paul.

1) Your lender may not agree to it.
2) You are trying to use your mortgage as a money management tool, rather than being disciplined about your finances.

You should get yourself over to the Debt-free Wannabe board and look for ideas to increase income / reduce your outgoings and debts.

Time to make some lasting adjustments to lifestyle and attitude to your finances.

bordercars

if you have 4k on a zero % card why worry about the amount in debt. i would of said if you could be disciplined enough and were paying interest on you cc maybe for the short term you mention , but as you stand i see no benefit.

Photoshopguru

I see what you mean. In terms of lifestyle.. I have none. I don't think I can possibly cut back anymore.. I've cancelled Christmas (not buying any gifts or sending any cards). I spend £40 a week on food and house stuff. I changed my car to an incredibly dull, but frugal one (I cant rely on public transport.. I looked into that) which I only use when I have to. I don't subscribe to anything, and never go to the pub. I've not been on holiday in years. I don't smoke or drink. I never buy magazines or newspapers. I have a lodger - however; her job got hit by the recession and I won't make her homeless (she's actively looking for work too). I volunteered to take a pay cut at work to protect my staff. I also got stung for a massive water bill - due to leaky pipes for which I'm waiting on a refund..

I've looked at getting a part time job - but nobody in this area is hiring.. plus, they are reluctant to hire me because by day I have a very senior role in a company and they wonder why I'd want to work as a cleaner / bar staff.. I'm really not that fussy.

Gorgeous_George

I calculate that £220 at 5.99% makes your mortgage approximately £44K.

If it reduces your monthly payment by £300 your mortgage must have 9 years and 3 months to run.

If those two assumptions are correct, it would seem that you could reasonably consider the interest free option. But you must understand the cost.

1. There will be an admin fee for the change.

2. 5.99% is the same as 7.49% from a savings account.

It really should be a last resort. Do it once and you may think it is ok to do it again. MEWing is usually a bad thing. What is the most frivelous thing that you spend money on? Mobile phone, chocolate biscuits? That is what your are risking your long term financial helath for by going interest only.

The DFW forum would my first port of call too.

GG

Photoshopguru

bordercars wrote: »

if you have 4k on a zero % card why worry about the amount in debt. i would of said if you could be disciplined enough and were paying interest on you cc maybe for the short term you mention , but as you stand i see no benefit.

Thanks. My only concern is the rate runs out in April and I'd just like shot of it.. hate debt..

Maybe I'm better waiting till April and then decide what to do? My theory - and I can sort of see how this is flawed, was that if I just paid interest now on the higher rate, when I get a lower rate (which I paid interest on) overall I will still be paying less on the mortgage than I am now.

However, if I pay interest now, and interest later on the lower rate I'd save even more..

Photoshopguru

Gorgeous_George wrote: »

I calculate that £220 at 5.99% makes your mortgage approximately £44K.

If it reduces your monthly payment by £300 your mortgage must have 9 years and 3 months to run.

If those two assumptions are correct, it would seem that you could reasonably consider the interest free option. But you must understand the cost.

1. There will be an admin fee for the change.

2. 5.99% is the same as 7.49% from a savings account.

It really should be a last resort. Do it once and you may think it is ok to do it again. MEWing is usually a bad thing. What is the most frivelous thing that you spend money on? Mobile phone, chocolate biscuits? That is what your are risking your long term financial helath for by going interest only.

The DFW forum would my first port of call too.

GG

Thanks. I'm heading over to the DFW forums now. My biggest expense is my car.. in good times I had a sports car, which hammered my bank account but that was ok as I could afford it.. Or could I?

I don't think I put enough away for a rainy day. I now drive a Tdi.. £30 a year tax, £50 a week on fuel. Selling my car really isn't an option either, as I wont get back anywhere near what I paid for it - and need a reliable vehicle. Due to where I live public transport really isn't an option. In the summer months I cycle the 25 mile round trip to work - but in winter its too dangerous.

Off to read DFW - thanks