Only paying Interest Only - Is this really bad?!

kankan_2

Hello

Have been reading the forums with interest and wondered if I could ask some advice from you all?

My husband and I moved when I was pregnant because once the baby came along, we would never have been able to get a mortgage until I was back at work full time (this will probably be in 7 years time). We decided to stretch ourselves as we don't want to move again in the near future. I am currently on maternity leave and will be going back to work in Jan part time. We are paying interest only repayments to get us by while on 1 salary. We don't know whether to carry this on until I go back to work full time or whether to pay the full mortgage from Jan. Paying the full mortgage will mean we will have to live on a very tight budget and forego any treats. We don't mind but there is our baby to think of (a very gorgeous 7 month old!) and I don't want him to go without.

Approx Monthly Incomings:

Husband's salary - £1,600
Benefits - £73
Total - £1673

Approx Monthly Outgoings:

Interest only Mortgage - £642
Council Tax - £120
Gas - £34
Electric - £50
TV Licence - £11
Water - £33
Phone - £12
Food - £200
Petrol - £80
Life Insurance £73
Home insurance - £20
Total: £1275

Left with £400 a month for other items such as clothes, socialising, house stuff, holiday, toys, birthday cards & pressents (big family!), stuff for crimbo...

Anyway, the full mortgage payment is £250 more which would leave us with £150 for the above.

Once I go back to work it will bring in, after childcare, an extra £300 per month roughly.

Question is - do we carry on with interest only or pay the mortgage in full from Jan?

The thing I find hardest about cutting back is the social side of things. We love entertaining but have realised that this is quite expensive! We have started to politely decline invites to things to avoid having to return the favour - how do other people get around this???!

Any help would be greatly appreciated. Sorry to have gone on.

Thanks
Kankan

Rikki

You have life insurance so personally I see no hurry to change your mortgage. Have you concidered making higher monthly payments and reducing the capital?

Have a look at my post from earlier today. It may help.
http://forums.moneysavingexpert.com/showpost.html?p=2812080&postcount=6

Cara79

I agree. Why don't you check the T&Cs of your mortgage and make capital payments if it allows. Then you're not committed to having to pay the larger monthly amounts. You can choose how much you pay per month, or just when you've got an amount to pay off the mortgage. Every little helps.

However, you need to ensure you are disciplined to go back to repayment in 7 years time / when you go back to fulltime work, which I am sure you will do.

Good luck and enjoy that little one. :j

Cx

PoorDave

What about a part interest-only, part repayment scheme? Or do you have to change mortgages to get these facilities?

It would stop you having to manually make extra payments, which you might not get around to sorting out, and find more of a hassle.

Then again, if you pay manually against the capital, you know what you can afford each month

comping_cat

How about going to the OS board, for hints at cutting back. If you like entertaining, there are loads of lovely recipes that you would be able to make on a tighter budget, and loads of help and advice on cutting back in other areas too, without cutting back on your standard of living. Might be worth a look to see if there is any help there before making up your mind. Im sure it would be great to pay all the mortgage if you are able to keep a standard of living similar to what you have now.

kit

I second the above post - check out the OS board as you have huge scope to lower the amount you spend if you are careful and plan properly.

I lived a year with just £50 left per month and after a few months adjusting we managed well. Remember that every little saving adds up.... saving £20 a year on your gas and electric may not seem much but its well worth making all those little changes.

PabloNeruda

£400 per month spare? You poor thing.

Debt_Free_Chick

kankan wrote:

Left with £400 a month for other items such as clothes, socialising, house stuff, holiday, toys, birthday cards & pressents (big family!), stuff for crimbo...

I think that before you do anything with the mortgage, you must make sure you have a full and complete budget.

You have petrol in your budget, but nothing for road tax, insurance and maintenance. No other travel costs?

Nothing for internet/broadband

Nothing put aside for a rainy day fund e.g. for house repairs/maintenance.

Do either of you wear glasses or have contacts? If so, you need to budget for eye tests and contact cleaning stuff.

Nothing for dental care?

Budget for gifts/presents, holidays and clothes.

No credit card/debt repayments?

No savings?

You might find it helpful to work through Martin's Budget Planner

Thefunkygibbons

I can understand that you do not the child to go without, but it will be several years before they will even care

At this stage of life, kick holes in the mortgage so that the total interest you pay is reduced, so by the time it matters you can afford to spoil a little

Right now, all a child needs is security and parents' love

Use the overpayment calculator to see what impact £200 a month would have on clearing the loan

Imelda

I would definitely try to overpay even if it is a little, your food bill looks high for 2 adults and a baby, definitely get over to OS and see ways to cut down (I think you could save about £50/ month) Also, do budget for other bills such as car tax, insurance, christmas, dentist, hairdressers, clothes. Do you do a spending diary so that you know exactly what this £400 gets spent on?

Welshlassie

We're on an interest only mortgage, as advised by our IFA. His argument was once your interest only you can overpay to the value of a repayment mortgage, but if for any reason one month you have something unexpected you can not pay the extra and use it for the unexpected amount (does that make sense?). It is easier to stop paying extra in an emergency than going repayment and trying to take a break from paying then, it would also affect your credit rating if you missed a payment because you were over stretching yourself on a repayment.

We are putting most of the repayment element to one side and will lump it off the mortgage once a month, with the remainder going towards paying the capital off each month.