Repayment versus Interest only

angie2601

My fixed rate interest only 5 yr mortgage has expired.
The new tracker rate is very low and my interest only repayments have dropped by about £700.
Obviously this is to do with the interest rates and I need to ensure affordibility when the rates go up.

I do not as yet have the capital arranged to pay off the mortgage and if I switch to a repayment mortgage with my lender then the monthly payment is about £200 above the previous amounts I was paying.

Due to child care and other financial contraints I can't switch to a repayment method at this stage so my questions are:

Should I stay with the interest only until I can begin to afford the capital/repayment on the house ? IE get my debts under control and watch the interest rate before changing mortgage repayment type

What other capital raising options are there ? Endowments & ISa's do not have a good reputation anymore and there is risk involved
What Endowment / option is available ?

Is there a good endowment / ISA out there ?

I already have two endowments ongoing (Set up by my father as a savings mechanism about 20 years ago) but these will not provided sufficient equity.
Can I speak to these advisers to arrange an increase in endowment for the 242k. (Aviva & Clerical Medical are my current endowment providers).

The property value now is approx 320k and the mortgage was for 242k over 25yrs of which 5 yrs has expired.

Thanks for any assistance anyone can offer.

Gorgeous_George

Start by saving the £700 each month. If you earn (after tax) more than your mortgage rate, this option will be better than changing to a repayment mortgage. Also, if you change to repayment, you might not be able to change back.

Endowments are pants but cash-ISAs aren't so bad. Again, if the ISA rate is higher than your mortgage rate, this is better than changing to repayment.

What is your tracker rate?

GG

blueberrypie

angie2601 wrote: »

Should I stay with the interest only until I can begin to afford the capital/repayment on the house ? IE get my debts under control and watch the interest rate before changing mortgage repayment type

What are the other debts? It is very likely they are at much higher interest rates than your mortgage, and so it would be best to get those paid first. You should enough in accessible savings to cover a few months of living expenses, but aside from that:
- always pay the mortgage (even if it's interest-only - just don't miss payments)
- always make the minimum payment on credit-cards/loans
- then use what's left to attack the most expensive debts (i.e. the ones with the highest interest rates) first.

angie2601

Thanks for the reply. My tracker rate is 1.75%.

Gorgeous_George

angie2601 wrote: »

Thanks for the reply. My tracker rate is 1.75%.

Thre are plenty of savings accounts with rates higher than 1.75%. Do noy change to repayment - save instead, at rates higher than 1.75% (after tax).

GG