Deferring Interest Only Mortgage Payment?

Sponge

My mortgage is interest only. I work full time and my wife is on extended maternity leave, i.e. it's unpaid. I'm doing quite a lot of overtime this month and the next 2 or 3 months too, all to compensate for the loss of one wage and in an attempt to clear the overdraft on our joint account and my sole account. But it's proving harder than I anticipated. I should be able to clear it and have it stay clear in the next 3 or 4 months, but my question is this - is it worth deferring payment on my mortgage (c. £330) for a month or two, to help clear the overdrafts quicker? Or would the extra mortgage interest incurred outweigh any saving from reduced overdraft interest.

I'm not sure there's enough specific information (numbers) for anyone to offer any advice (I suppose I could provide them if necessary), but your general thoughts are appreciated.

regularsaver1

does your mortgage lender offer payment holidays then? - as your mortgage payment may go up as a result - worth finding this info out

and compare the interest between the two

dunstonh

I also recommend you start seeking debt counselling as you are running very close to big problems here. If you cannot afford a repayment mortgage now and are already asking for payment holidays on an interest only mortgage, then you are going to be facing some big financial problems in years to come.

Deferment of a mortgage payment could cost you far more than overdraft interest because the interest cost is spread over the remaining mortgage term.

regularsaver1

i agree with dunstonh - about the interest only mortgage and the cost to the mortgage

what was the reason for interest only mortgage in the first place?

kenshaz

When your wife returns to work ,the situation will improve ,and you are presently taking steps to alleviate the situation,overtime etc.
The mortgage holiday is not something that I would wish ,but if it helps your present arrangements fine,the opportunity for your wife to spend time with your child is special.Good luck

YorkshireBoy

If you take a payment holiday without first building up a reserve with overpayments, check with your lender what they will report to the Credit Reference Agencies.

They may choose to report an 'Arrangement To Pay', meaning your credit rating will almost certainly be affected. If you don't need credit (re-mortgage/credit card/new current acount/buy-now-pay-later/etc) in the near future it's worth considering - but only as a last resort.

So, it's the lesser of two evils really. The mortgage interest will certainly be less than your overdraft interest so your monthly interest payments to your overdraft will be reduced, but your credit history may be damaged.

Making up the payments later (with 2 wages coming in) will be possible, and you shouldn't worry about this aspect, but you MUST have a plan in place.

Sponge

Thanks for the advice. It was certainly food for thought.

We are allowed up to 6 months holiday and depending on how long we take, the payments are increased accordingly. It was about an extra £16pm, for each month taken, if I remember correctly.

The interest only mortgage is part of a plan conceived with a financial advisor when our previous mortgage offer came to an end and we had discovered we were expecting our first child.

My wife will be back at work by Christmas (part of the plan) and soon after we intend to make overpayments/move to a repayment mortgage. I was considering the idea of a holiday in the hope it would reduce the time to clear my overdraft (hence reducing OD fees), give us some spare cash at the end of the month (aren't nappies expensive?) and give me some time off (I'm averaging 72hrs a week at the moment and I'd like to see my Son), but not if it works out worse in the long term.

So, I've decided against taking a holiday. I should be straight within 6 months and I don't want to risk effecting my credit rating, or be paying long term for a quick fix.