Change from Repayment to Interest Only Mortgage

dylan15

I will be going on maternity leave in a couple of months time and this will result in a reduction in salary, firstly by half and then onto SMP. In order to try and make life a bit easier during this time i was thinking of changing my mortgage from repayment to interest only for the 9 months maternity period. Once i return to work and full pay then switch back to repayment.

Just wondering if this is an OK idea and not a terrible one! My current mortgage is 130,000 and value of home is approx 200,000 so no negative equity worries.

Just wanting someone elses opinion!

opinions4u

1) Your lender would have to agree to it, and they don't have to.
2) You are effectively borrowing the capital that would have been paid off the debt - they will charge you interest on this.
3) Some lenders will record this as arrears on your credit file - if you go down this route make sure your lender isn't one of them!

Some lenders do offer mortgage payment holidays which will allow you to miss full payments. Points (2) and (3) apply to this too.

In a perfect world you shouldn't use your mortgage to subsidise your life. In an imperfect world I'd go down the payment holiday route for a couple of months, rather than the interest only route for 9 months.

But make sure you're fully aware of the impact on your mortgage debt and credit file before doing anything.

Good luck.

VIGILANT22

dylan15 wrote: »

I will be going on maternity leave in a couple of months time and this will result in a reduction in salary, firstly by half and then onto SMP. In order to try and make life a bit easier during this time i was thinking of changing my mortgage from repayment to interest only for the 9 months maternity period. Once i return to work and full pay then switch back to repayment.

Just wondering if this is an OK idea and not a terrible one! My current mortgage is 130,000 and value of home is approx 200,000 so no negative equity worries.

Just wanting someone elses opinion!

discuss with yr lender now, (if practical) you have a facility to overpay between now and going on mat leave....then the overpayments could cover you for the mat leave period

getmore4less

opinions4u wrote: »

1) In a perfect world you shouldn't use your mortgage to subsidise your life. Personally I'd go down the payment holiday route for a couple of months, rather than the interest only route for 9 months.

Mortgage holiday increase debt.

Interest only, level debt.

opinions4u

getmore4less wrote: »

Mortgage holiday increase debt.

Interest only, level debt.

If you read my post back I actually said "Personally I'd go down the payment holiday route for a couple of months, rather than the interest only route for 9 months" and counseled the OP to "make sure you're fully aware of the impact on your mortgage debt". (what I was trying to get across is that in a perfect world neither option is right ... but in an imperfect world I'd consider the payment holiday route ... I'll make an edit to my post to try and clarify. Thanks).

On a £100k mortgage over 25 years at 5% the full monthly payment is £591. Interest only is £417.

A 9 month interest only period would mean the debt is (roughly) £1,566 higher at the end than it would have been without going on to interest only.

A 2 month payment holiday would mean the debt is £1,082 higher by the time normal payments recommence.

While there's an element of swings and roundabouts between an interest only v payment holiday strategy, a well timed 2 month payment holiday would leave the OP with less debt at the end of the maternity period than a 9 month interest only spell (although this can vary dependent on the debt, interest rate and remaining term of the mortgage).

In a perfect world the planning for maternity expense shoud take place in the months prior to incomes reducing, rather than relying on the goodwill of lenders once the incomes drop and the bills rise.

The suggestion of overpaying the mortgage before the birth, with a view to underpaying afterwards, holds water. As would sticking money in a savings account in anticipation of the financial pressures that a baby inevitably brings.

dunstonh

Pitty the financial institutions didn't plan on a financial crisis before relying on the goodwill of the taxpayer to bail them out. Something that we, the taxpayer, didn't have any say in the matter!

That absolutely nothing to do with your situation. In the past the Govt has bailed out many companies and poured millions (or billions in todays terms) into many different industries to prevent them from collapsing.

Whilst I am not saying that the banks did was inexcusable, they are not responsible for you getting pregnant or your inability to afford it.

Sorry to sound harsh but I disliked the way you tried to blame the banks for your lifestyle choice and your inability to save for a rainy day.

VIGILANT22

QUOTE=dylan15
2 - My husband would not have had to take time off work due to illness and we had to live on SSP for a few weeks, therefor eating into our savings QUOTE]

This is where people who have Income Protection Insurance benefit....

dylan15

dunstonh wrote: »

That absolutely nothing to do with your situation. In the past the Govt has bailed out many companies and poured millions (or billions in todays terms) into many different industries to prevent them from collapsing.

Whilst I am not saying that the banks did was inexcusable, they are not responsible for you getting pregnant or your inability to afford it.

Sorry to sound harsh but I disliked the way you tried to blame the banks for your lifestyle choice and your inability to save for a rainy day.

Hi Dunstonh

Sorry for annoying you! I am in no way blaming the banks for my situation, that was not my intention. I was just replying to a previous comment made regarding my supposed reliance on my lenders goodwill.

Have removed said post as very new to this and do not want to annoy people! Sorry again!

dunstonh

Sorry again, very new to this and do not want to annoy people!

You will win points and goodwill with the regular posters with that post. So, you are doing fine. (i.e. you didnt go off on one). This forum does tend to attract a lot of people who dont seem to have personal responsibility and like blaming others. Nice to see you are not one of those as that is what it looked like for a minute

The problem you have with interest only is that lenders have been told by the FSA not to use it as a way to afford the monthly payments on a mortgage. That meant that they should make sure that repayment vehicles are in place (investment plans) when they agree to it. However, some lenders have taken that to mean that they shouldnt go interest only full stop or in short term cases like you are proposing. So, they will automatically say no. I dont know personally what your lender will say but be prepared.

getmore4less

opinions4u wrote: »

If you read my post back I actually said "Personally I'd go down the payment holiday route for a couple of months, rather than the interest only route for 9 months"

Fine thats what you would do but the OP is going to be on reduced income for a while, matching outgoings on a regular basis(interest only) makes more sense that taking a payment holiday to give some savings to cover the payments.

If the OP had some pressng need for cash then the short term payment holiday would fit that need.

using www.whatsthecost.co.uk doing a like for like on the example.

£100k 25y 5%

£416.57 interest only level payment end of 9 months still owe £100k
£584.59 repayment

2 month holiday the debt rises to 2*£416.57 + one months interest on the £416.57 1.74 say £834. with £833 in the bank.

New payment required to bring the debt back to the £100k in 7months is £537 so £121.57 more than the I/O payment, for the 7 months thats £851 so you a worse of taking the holiday than going i/o unless you can get a good rate on the savings.

dylan15

Thank you very much, getmore4less, for your update. Really appreciate the work you have put into your reply.

I was of the same opinion that it would be better to go I/O as apposed to taking a payment holiday. The simplest way i see it is that, i don't want to have to pay additional interest on the intrest i did not pay with a payment holiday and would rather just pay additional interest on the capital that i did not repay by going with I/O.

I will visit the link you provided and enter the specific details to get an accurate picture and will also be speaking with my lender re my options.

Thanks again!!