Temporary switch to interest only?

chuffee

I currently have an £85k mortgage on a property that was worth £110k at the last valuation. After a fixed rate ended I'm on Abbey's SVR at 4.24% There is 25 years left on the mortgage and I've not overpaid at any point, it is not a joint mortgage.

Given the high LTV I'm currently sitting on the high SVR for now as I don't see I've got that much choice.

I'm seriously looking at a degree course in the near future, probably 11/12 start. I didn't think it would be possible with my current mortage commitments. However a friend of mine said that a common practice was to revert to interest only for three years while studying and then revert to repayment after that. However I remember a banks financial advisor telling me that once you start with an interest only mortage it's not possible to revert to a repayment. Which is right?

I am eligable for student loans and bursaries to study, amounting to about £7k. I'm also able to rent a room in the property which I estimate will generate another £3k. So with a part time job in the evenings I think I should be able to manage to fund the study. However reducing my mortgage costs for the period would make things a lot more managable.

Any advice would be appreciated. Is it realistic to consider higher education in this position?

Cannon_Fodder

What is your age?

chuffee

33, I've supported myself independently for over 15 years based in the uk so I think I'm entitled to HE support (If it's still around in 2011...)

_Andy_

At that LTV Abbey will probably decline it but worth calling to find out.

Cannon_Fodder

The advisor was talking out of his hat.

Age 33, mortgage 25 years still to run, gets you to 58. 3 years deferral of payments will move that back to 61.

Doesn't leave very long, imo, to be mortgage-free and build up your retirement nest egg.


In the short-term interest rates are going to rise. Taking the SVR up with it.

Being IO will mean your LTV worsens. Future re-mortgaging will be even more expensive than it is now.

So, if you can overpay in advance, say for the next year (or quicker if rates move after the election), to make up for future non-paying, perhaps you could achieve an LTV that gives you a reasonable deal and fix for 5 years ahead of the study period to insulate you from further changes to rates.

treliac

How willing are lenders, these days, to provide IO mortgages without firm evidence of a vehicle for repaying the loan?

_Andy_

Abbey won't at that LTV.
As stated, you need to ring them and ask - it will either be approved or it won't.

beecher2

You'd only save about £150/month by going interest only - is that going to enough to make a difference. What will you do when interest rates go up again as that saving could be wiped out when the SVR increases.

chuffee

Sounds like my best bet is to try and get my spare room let as soon as possible and use this income to eat away outstanding debt. Then I can look again nearer the time with my new position and the new interest rates. I suppose the only problem with this is I'm stuck gambling with the interest rates and won't be able to jump back on to a fixed rate when the base rate looks like creeping up, but with my current LTV that was probably not an option anyway. At least I know in principle this is maybe possible to have a brief spell on IO if I need to, so I can carry on researching the universities.

Thanks for your help!

chuffee

@Beecher2: I hadn't realised that the difference was so small. I got the impression from what my mate had said that IO payments were considerably smaller than that. Should have used the mortgage calculator before posting. If I've used the FSA calcualtor right a rate increase to 7.25 (+3%) would mean an extra £154/mth on repayment or +£213/mth on interest only. Given that rates are only going to rise it's an important consideration, so I suppose IO might not be the breather I was hoping for.
So I suppose I need to get repaying quickly now if I've any hope of studying.

Thanks again.

beecher2

chuffe, your mortgage is probably lower than your mates, which is why the difference. Will Abbey definitely not offer you a new deal atm?