Should I change to a repayment mortgage now?

emz760

Hello there. I'm wondering if someone wouldn't mind giving me a clue? I'm afraid I'm not terribly knowledgeable about these things so please forgive my simpleness.

Unfortunately and naively I bought my little ex council house with an interest only mortgage with Northern Rock about five years ago, initially the fixed rate payments were about £425 a month. Two years later I was advised again to persevere with the fixed rate interest only mortgage (I know this is silly, but due to said bad advice took it upon myself to learn since!) to try and keep my payments down, which by that time with Bradford and Bingley had shot up to £725. By the time the interest rates dropped as they did last year the fixed rate period was over and I benefited from a reduction in nearly £200 on my monthly repayments. I'm in a professional job (God willing) and have so far been able to manage the changing costs well, even at their highest, though that was a bit of a stretch. The fact I am still on a interest only mortgage leaves me feeling rather uncomfortable with this, even if it is relatively cheap currently.

Now, I believe my little home is in negative equity though not looking to move, so frankly no new mortgage provider will touch me with a long stick, and I have no savings. Bradford and Bingley are willing to change the account to a repayment with variable rates, but my payments will rise a good £150 and with things being as fragile as they are currently I'm wondering whether now is really the right time to take on more outgoings with the risk that rates may, and probably will, rise. I can do precious little about my mortgage provider, I just need to know if changing to a repayment mortgage is a good idea or whether I should stick where I am until stability improves?

beecher2

Are you able to overpay? What did you do with the £200 a month you saved - should probably have flung that at the mortgage. You could go onto the Debt Free Wannabee forums for help in cutting down on expenditure, and building up your savings or overpaying your mortgage in order to get out of negative equity with the view to moving over to a repayment mortgage as soon as you can. This will also give you a cushion for when interest rates rise.

dunstonh

Two years later I was advised again to persevere with the fixed rate interest only mortgage (I know this is silly, but due to said bad advice took it upon myself to learn since!)

Why was going on to another fixed rate bad advice?

Bradford and Bingley are willing to change the account to a repayment with variable rates, but my payments will rise a good £150 and with things being as fragile as they are currently I'm wondering whether now is really the right time to take on more outgoings with the risk that rates may, and probably will, rise.

If you dont start repaying the capital soon, the monthly cost (if you start later) will just keep going up. Ultimatly, you will be asked to pay off the full amount in one go.

FACT: interest rates will rise at some point..

I just need to know if changing to a repayment mortgage is a good idea or whether I should stick where I am until stability improves?

Thats a red herring. In a typical mortgage term, you will have at least 2, more like 3 or 4 recessions. This is not new, its not unexpected and it will not be the last time we have one. You shouldnt pick and choose when you pay your debts based on the economic cycle.