going interest only on mortgage - any negatives?

dib-dab

Yesterday I did a big spreadsheet with all of our credit card debt and the predicted amount we can pay off each month until it is all gone and it goes to the middle of 2011!! The only extra thing now that I can think to cut down on is to go interest only on the mortgage until we have paid the debt off. Are there any warnings against doing this? We did overpay the mortgage by a total of £1200 last year - I know now it would have been better to pay this off the cards but we were concerned about being in negative equity.
I have realised I don't actually know what rate we are on at the moment - Halifax standard variable rate - so I need to find this out.
But we pay £802 per month for our mortgage so I am thinking that we could maybe reduce the payments by £200+ and pay off the cards instead - it would go a long way!
But are there any reasons I shouldn't that I might not have thought of?

Pobby

To my mind it seems like a good idea. The big pit fall that I think needs to be born in mind, is that for that period you will not be paying off the principal sum. If it`s in the short term it would seem quite prudent but do make sure that you start paying back the principal ( repaynent mortgage ) as soon as your finances allow. It`s easy to get into the interest only way of thinking as it can be a good bit cheaper.

I have a friend who took this route when he lost his high paying job. Working well for him.

jm28cardiff

Why were you concerned about negative equity? If your not planning on moving it doesnt really matter. Can you take a payment holiday on the mortgage? Switching to interest only for a while, then switching back seems like a hassle, and you may incur fees etc as well.

computershack

OK...

Negatives:
You've still got to pay it off.
You're assuming you'll be able to get a mortgage in a years time to go back onto repayment.
Its quite easy to fall into the "we're saving £xxx a month, we'll do it next year" mentality.

Positives
Can't think of any. Sure you'd get the credit cards paid off quicker but the fees you're going to pay to remortgage twice (once into interest free, one back to repayment) are going to far outweigh even the £200 a month your mortgage will reduce by for the short amount of time you're planining. Better actually file that as another negative.

You've only got 18 months of suffering "as is". Surely thats better than spending £1000's in fees etc just to bring that same suffering down a few months?

dib-dab

Thanks for the replies.
To be honest I had not thought of it in terms of having to get a 'new' mortgage to do this so definitely worth considering.
We are not tied into a deal at the moment - we came out of one in July and now are just on the standard variable rate which works out about £150 per month cheaper than the deal we were on. Obviously when the interest rate looks like it will be increasing we will look to go back into a fixed rate mortgage.
So I don't know whether it would be more flexible as we are not tied into a product. Maybe not and I am just being clueless! I might give them a call and enquire.

laurasavon

Halifax's SVR is 3.5%

I don't think you have to re-apply for the mortgage to covert to interest only you just have to let them know how you intend to cover the capital

property.advert

The OP has given no details of the amount of the mortgage but we know it is not the first year of the mortgage and the repayemnt is £801 and the SVR is 3.5% so basing it on a mortgage with 20 years left, £801 equates to a balance of around £140,000 and the monthly interest charge is just over £400.

Going interest only for 12 months obviously frees up around £5000 (12*400) and then to keep the mortgage to the same time period, you would then have to pay an extra £30 per month for the remainder of the 19 year term.

It does just transfer your credit card debt to a 19 year debt but you could then overpay again to bring down the £5000 that you did not repay.

Even if you switch to a more restricted product, you could keep maybe £10,000 or £20,000 on a flexible basis, in case you are able to repay in the future.

Mortgages are not set in stone and if this fixes things and improves the quality of your life, then use it.

dib-dab

Thanks again for the replies.
property.advert I think you have made my mind up for me when you said that it would be transferring the credit card debt to a 19 year debt - again I had not thought of it like that (I'm coming across as a right thicko and I'm not really!!) but that is exactly what it would be doing and I don't like the sound of that - we want to pay our debt off not transfer it. I do not include my mortgage in my 'total debt' - it is the credit cards I am in a hurry to get paid off as they are much higher interest rates and then will focus on overpaying the mortgage - so it would look like our debt was going down a lot more quickly than it really was.
Although very tempting to free up that much money I don't want to transfer the debt so think that idea is out.
You weren't too far off with your sums - we have around £160k remaining but I think we have just under 25 years left as took out a 30 year mortgage.