Only paying Interest Only - Is this really bad?!

gb57

I agree with the comments about working out your budget more, and also about your baby's needs - love and more love! You can get great baby clothes very inexpensively in Woolies, charity shops etc. Babies grow so quickly it is not worth spending a fortune. They need to be/look clean and cared for, not fashionable. You also do not need to spend a fortune on toys. Try e-bay and charity shops, ask your large family for exactly what you want for the baby for Christmas/birthdays. I come from a large family. When my millions (I exaggerate a little) of nieces and nephews were little we were all living on tight budgets. We would all do "wish lists" for Christmas and birthdays - but not expensive stuff. Even now I ask what the ncs & npws want me to buy for THEIR kids - better to give something that is needed, and nobody ever puts expensive stuff on the wish list.

Work out your budgets, read this site carefully. An interest only mortgage means you are spending a hell of a lot more over a period of years than if you are repaying capital as well -try to pay off lumps of capital, and maybe when you return to work try saving most of your money for that purpose. Personally I think interest only mortgages are a dreadful idea!

With regard to presents for your family, again read this site, shop throughout the year, in sales etc, and keep for when needed.

A water meter might be cheaper than paying water rates - I reckon it probably is cheaper for almost everyone except a very large family. My neighbour pays over £50 a month water rates - my metered water is £13 per month (and yes, I have suggested she switch to a meter)

As someone says - £400 per month "spare" - wow, what riches!

You don't want to be storing up debt for the future. Set budgets now, and think about the way in which you spend. Entertaining does not have to be expensive - ask your friends to bring some booze - cook something economical - surely the idea is to see your friends and not to impress with how much you spend? Another idea if you go to one another's homes is for one to bring starter, one do mains, and someone else bring dessert. You don't need to deny yourself things like that, just look at them with a new "eye" perhaps

Susan_C_4

Just wanted to point out that I don't think that KanKan has £400 per month "spare" to spend on luxuries. This appears to be money that must be accounted for essentials such as clothes, household items, baby items, repairs, dentists, etc and other "non-essentials" which we could consider luxuries such as holidays, birthdays/christmas etc.

I believe that we should all try to reduce our mortgage and debt as much as we can but a certain amount of our monthly income should go towards things that make us happy otherwise what is the point of working?!

I agree with other posters that KanKan should maybe try to cut back slightly if she can and maybe set a target of overpaying £x amount each month of the mortgage.

Hope this helps and I am only giving my opinion and don't wish to cause offence to any of the other posters.

Sue

ms_london

Hey there. I think that you should change your mortgage. You could cut the 200 (no pound sign, in Oz!!) you spend on food down, almost by half, and like you say, when you return to work, you'll have an additional wage coming in. How about child allowance? I think if you're honest with yourself there will never be the "right" time to change back to a repayment mortgage, and its never fun knowing you're on a tight buget, however, your circumstances will change, payrises etc xx

jamesd

It's fine to be on interest only. As funds allow you should look to pay off the capital. That can wait until you are also working. Might also allocate some of that income to fun things so it doesn't feel as though you are working for no immediate benefit.

As your incomes rise you should be looking to allocate some of that to some way to repay the mortgage.

Note that you can get a cash ISA paying 5.75%. As long as you can get after tax or tax exempt interest rates that beat the mortgage rate you're better off using them instead of paying capital. Then you can repay the capital once you accumulate enough to pay off the whole mortgage.

Everest

I absolutely agree with Jamesd. I am currently on an interest-only mortgage with C&G. This allows me to overpay by an amount equal to the interest bill every month plus 10% of the outstanding amount every year. This makes one real difference to a repayment mortgage which is flexibility. I can make/save more money by investing than by paying off my fixed rate mortgage, so I do that instead of overpaying. Were I to find this situation changes I will use my savings to pay down debt. I can understand why repayment mortgages are good if you need the discipline they engender, but for me the flexibility is worth so much more, in this there is no downside for me.

gb57

Everest & Jamesd have exactly the right idea, but they are obviously disciplined and "good" with money. My worry is that many people take an interest only mortgage because it seems cheaper, but don't think about the long term consequences. KanKan is obviously bearing all that in mind otherwise she would not have asked the question, but the danger is ignoring the fact that one day that money has to be paid back....

Some clothes are essential, and of course we all need good things in life as well as paying off the mortgage! But good things don't have to be expensive - smelling the roses and enjoying the sunshine, watching the children grow and so many other things cost nothing and are really what life is all about....

Saving up for treats can be rewarding in itself - when you get the treat you know you have saved and worked for it - think about when you saved up for things as a kid - anticipation is half the fun!

Obviously don't want to offend anyone either, but spent the first 30 years of my life living on incredibly tight budgets - hand to mouth - and have a very cautious approach to money even now. Planning and saving for the future does work though!

jamesd

gb57, it's definitely a concern and this sort of thing isn't for everyone. One way to handle it is to find the repayment mortgage payment amount and keep your own track of how far you are ahead of or behind on saving the difference between the two each month. That way you'll know how many months you've extended your mortgage for by not making payments and will have some incentive to get on track for repayment.

Assuming you actually want to repay. The cash could just be used to buy a new property and the old one sold or converted to BTL.

savvykaz

Interest only is ok while you only have one wage but I would strongly recommend going on a repayment method once you are back at work

How much extra a month would it be and would you earn enough to cover this? Sorry if this has already been asked.

savvykaz

What a muppet I am!

I have just re-read your post and have seen the answers to my questions!-You would be better off by another £50/ month, so I would DEFINITELY advise you to go onto a repayment mortgage once back at work. We did interest-only for 6 months when DH was off sick and it was such a relief to start paying off the capital again!

Unless of course you are extremely self-disciplined and do as has been advised and invest into a high interest account - personally, I would have had excuses on what we needed to spend the money on and would not have saved it.

mindysouthern

Well,
ive only had my house for 3 years and am moving to a bigger house stretching us again. Initially we went interest only but when we felt more comfortable we started repayment. In order to keep the payments low our new mortgage is over 30 years instead of 22 (was 25 but obviously 3 years gone!). This means that we are paying money off the mortgage.

Because we have a good fixed rate we know our monthly amount and the difference between 25 and 30 years was £80, money we just couldnt find at the moment. Our mortgage allows us to pay off upto £15,000 extra A YEAR so if suddely we get rich we can pay extra a month.

Your mortgage company/bank should allow you to set your monthly payment at whatever you want, for example ours is £813 (30 years) or £895 (25 years) BUT we could set up our DD to be £850, thus getting rid of the extra years and if its DD you are more likely to be paying the extra, see what you can afford, fix a great interest rate and et your payments higher than the minimum (which is the amount you are give with a quote) this was if you feel that you are struggling you can change back etc....

Id say you're going to be £50 better off a month after paying the extra and if you can afford to live comfortably on what you have at the moment why not work to be debt free? But ask your bank about the 'overpayments', my Aunt is a mortgage advisor and explained all this to us before we got our new deal...

I hope this helps you x