Mortgage v rental

shortchanged_2

rendezvous wrote: »

20 years left

On that basis I take it your mortgage payments are about £585 a month. If the base rate went up by 1% it would cost you about £740 a month and a rise of 2% to over £890 a month.

rendezvous

maybe I got the rate wrong then cos i pay £740 now

BitterAndTwisted

When you took out this i/o mortgage what was your original plan for paying off the capital at the end of the term?

It seems to me that you do need to plan for interest-rate increases by either cutting your costs or increasing your family's income. Is there any scope there?

shortchanged_2

rendezvous wrote: »

3.8% variable with Northern Rock and possibly 30k equity in this property which i would invest if i sold the house

Also, where does the 30K equity come from? Did you put a large deposit down when you originally bought because don't forget house prices are on the way down.

rendezvous

our situation has changed since we took out the mortgage. We gained a bit of debt along the way which we have now cleared but we were going to set up a payment vehicle to help repay but now our calculations suggest the possible increase in mortgage payments is something that maybe we cant justify and in the long run see us back in possible debt

rendezvous

the 30k equity is the difference between our mortgage and the current selling price as property has held its prices here pretty well and we put down a decent deposit so im thinking if we sell we should invest and reconsider our options once the market has settled down

franklee

You're not the only one in this boat so if or when interest rates do rise I suspect there will be lots of forced sellers, you don't really want to be caught up with them. It does look to me like you are overstretched but then again you've not mentioned your income or if you can cut costs in other areas of your lives. If it were me I'd sell to pay off that unsustainable mortgage debt, but only you can weigh up the pros and cons for yourself. I suppose you could at least market the house, see at what price level you get any interest to see if you want to sell or not?

BitterAndTwisted

I suspect rents in your area are very likely to be more than the monthly cost of an interest-only mortgage.

In your shoes I would look at ways of paring down the housekeeping budget right down to the bone and perhaps look at the possibility of increasing your income.

The Debt-Free Wannabe forum is a good place to start at getting ideas about cutting costs as is the Old-Style forum. Here's a site which will give you some really good ideas about how to feed a family very well on a shoestring:

http://www.cheap-family-recipes.org.uk/

myhouse_2

Sounds like if you sell you may still owe money if you are in negative equity. If it was me, I'd be finding a 2nd job doing anything that I can to save and set aside money to pay down my mortgage or prepare for IR increases.
When IRs do rise (probably sometime Mar-Sep), they are likely to rise in quick succession. You could easily find yourself paying +1% by July and you should certainly be prepared for that outcome.
Really, though, you are a classic case of someone who should not have been given a mortgage (and definitely not an interest-only mortgage).
In answer to your question about getting back on the ladder, I would suggest that in a few years houses will be cheaper and borrowing will be easier than now (though not as easy as the bubble era).

BitterAndTwisted

The OP is not in negative equity. Yet. They say they think they have about £30k equity in the property.

Sounds like wifey might need to get a part-time job, perhaps in the evenings.