Coming to end of IO mortgage and no endowment

thriftykatie

This site helped me alot particularly when I had my LBM over 4 years ago. Since then I have paid off around £42000 of my £45,000+ debt and hope to be debt free (barring my mortgage) by the summer.

And therein lies the problem. I have buried my head in the sand about my mortgage as my other debts were so overwhelming, but now I know I must face up to this situation. The facts are:

I have a £78,000 interest only mortgage and I stopped making payments on the endowment after only a couple of years when I split up with my partner and started having financial problems. The endowment is predicted to give £13,000 at the end of the mortgage term in 3 years time, which obviously leaves a big shortfall. The property is now worth around £320,000.

Once I have finished paying off my debts I should have around £700 extra free a month (in addition to the £253 I currently pay in interest on the mortgage) so what is my best course of action?

I have not approached my mortgage lender (Santander) as I wanted an idea of my options. Do I try to extend my mortgage, get a new one? I want to try and resolve this without committing myself to a long term mortgage. My concern is that my credit history isn't perfect which obviously won't clear over night now that I am almost debt free.

The other 'spanner in the works' is that my ex's name is still on the mortgage (I was not earning enough to take over the mortgage when we first split and then I got into difficulties so did not approach them about changing this. There is not a problem with my ex agreeing to have his name taken off as I was always the one paying the mortgage.

Sorry for rambling. I hope someone can help point me in the right direction and if any more details are needed I am happy to provide them.

Thanks in advance.

HappyMJ

I wouldn't worry too much it'll just carry on until you pay it off. They may force you into making it a repayment mortgage though. You'll need to pay it off before you retire...that's all they want and as long as you are up to date with the interest payments then very little to worry about.

thriftykatie

Thanks for your prompt reply.

What will happen at the end of the term? I assumed at that point they would expect payment of the money borrowed and I was worried as I won't have the money available. When I have extra money available should I look at starting a new endowment to accumulate capital to pay it off. Or look at changing to a repayment at that point? I am currently looking at the mortgage guides on here but there is a lot to wade through...

HappyMJ

They'll send you a letter asking for it. You then send them one back with the proceeds of the endowment so far then they'll send more letters back and forward eventually you and the lender will agree to a repayment schedule. Depends on your attitude to endowments as to whether you want to start another one or not but I don't think the bank will agree to that so just switch to repayment. If your credit rating is not good I wouldn't bother looking for a new mortgage. You are on a half reasonable rate already and if you were to be approved for a subprime mortgage it'll be at a higher rate of interest so not worth the bother. You need 6 clear years of good credit to get a prime rate on a mortgage.

chirpchirp

Personally, I would have thought you are better dealing with this before it comes to an end. You need to discuss with the lender if you can extend the mortgage by however many years you need. You also need to see if your ex can come off the mortgage which if your earning multiples don't cover the amount he may still not be able to. Hope it all goes well for you.

thriftykatie

Thanks Chirpchirp - I guess my gut feeling was that I should approach my lender but I wasn't sure what my options might be. I hadn't done so before as I financially I wasn't in a position to increase my monthly payments. My earning multiples do now cover the amount fortunately so I think I will arrange to see my lender. Better for me to approach them than them approach me I think - was a little nervous of doing so but that sort of attitude held me back from getting out of my financial mess previously and now I'm nearly there so I had better lose those nerves...

getmore4less

Agree get it sorted now while you have time and income(asuming you do).

Don't be conccerend about a long term commitment,

The actual commitment is based on what you pay.

Extend as long as you can to give you flexability but make sure you pay what you can to shorten the term.

think about overpayment penalties on any deal you do get.

dexter_fan

Another option may be to start making overpayments now, that will come of your capital. As you are still on IO this will keep your committment low, but by making OP's you can reduce the debt owing