Interest only mortgages as interim measure?

Peardrop_2

Just wondered what your views were on this? I must admit its never something we've been comfortable with the idea of but I'm a Mum at home with three young kids and we are struggling every month at the moment.

We have a £148,500 mortgage which costs us £987 per month (fixed for another 16 months at 5.15%). We have 20 years left to run on it. I am planning to go back to work in approx 4 years on a full time basis. I have phoned our mortgage company just now and we can move to interest only (for admin fee of £50) and bring payments down to £632 per month.

We would set up a repayment vehicle but to be honest would be intending to playing 'catch up' when I'm back at work earning so would be making minimal repayments into it for the next 3 years. We have one other car loan which we will have the savings to pay of with within a few months.

Is this a dangerous route to take or is this approach more common nowadays?

Would appreciate any thoughts/warnings etc. I'm 29 years old btw.

MortgageMamma

Its not dangerous so long as you are either discplined enough to save now, or to swap back to repayment in four years and make overpayments.

HelpWhereIcan

Hi Peardrop

I have posted a link to an additional questionaire I am required to complete with a customer who wants an interest only mortgage. It may help make sure you aware of the risks of taking out some or all of your mortgage on interest only.

IO Questionnaire

You may also want to consider extending the term of your mortgage and keeping it as a repayment or just switching half of it to interest only. That way, at least somethng is coming off the balance and, even if you do nothing else, the mortgage will still be paid off at some point.

You will need to check the max term that your lender will allow you to have the mortgage over, but it may be up to 36 years.

Most website based calculators will be able to show the difference in payment, but I think you may find that doing it that way may offer a reasonable 'half way house' for you.

eg. £148,500 @ 5.1 interest

Interest only - £631.13
Repayment over 36 years - £ 751.41

Yes, there is still a difference, but it is still £236 lower than the £987 you are paying at the moment.

Alternatively

74,250 interest only = 315.56
74250 repayment 36 yrs = 375.70
Total = £691.26 pm

If they won't extend your term

100,000 interest only = 425
48500 repayment 20yrs = 322.76
Total = £747,76 pm

Use the questionnaire to make sure you are aware of all the issues and then make your decision without assuming that it has to be a straight choice between all on repayment or all on interest only.

Hope this helps