Can building society refuse to switch mortgage to interest only

samuel.s

Hi
I am thinking about phoning my building society and asking them if i can switch my base rate tracker to interest only payments. At the moment i am on a rate of .49% above base which is capped at 3%. I am making capital repayments at the moment. What i want to do is switch to interest only and then use the savings to start paying off large credit card debt. Some of which has an apr of 26%.

Normally are they reluctant to do this? do you have to complete new forms? i know when i wanted to increase payments in the past it was just a matter of a phone call.

I thought i would just see if i can find the answers here before i call as i do not know what questions they will ask or alarm them that i may be in financial difficulty,which i am trying to sort out.

hcb42

I would say they can refuse, although it depends on your circumstances and how you intend to pay the capital off...

Thrugelmir

With interest rates so low. Your lender will no doubt will enquire why you need to switch to interest only.

Paying off another debt rather then your mortgage isn't a particularly good reason.

The BS would no doubt expect you to reduce you expenditure elsewhere in order to save money and get to grips with your personal finances.

samuel.s

I have two endownment policies, but these are nowhere near enough to cover the outstanding. What i was hoping to do was make overpayments once the credit card debt is cleared. Even if i took 12 months interest only i could clear one card which would save me £335 per month. To clear them all though i would need about 4 years interest only payments.

Senior_Paper_Monitor

Simple answer - yes they can - they will effectively underwite it (probably credit checks etc) and will want to see if you can afford the increased payments that will result at the end of the interest only period and/or a repayment vehicle.

dunstonh

Yes they can refuse and the FSA have actively encouraged them to refuse by telling the lenders not to use interest only as a way to make mortgages affordable. Some have attributed that to existing borrowing as well as new borrowing.

The FSA fears that interest only defers the problems to another day rather than resolves the problem. In your case, when moving back to repayment mortgage (if you ever did as many leave it as long as possible or dont bother - another problem) the repayment mortgage will cost more than it was before you moved to interest only. That can make the mortgage unaffordable.

To be honest, if you cant afford a repayment mortgage now with the interest rate you are on at this time then your problems are bigger than you realise. A move to interest only isnt going to help you. You should be using the money saved from all time low mortgage rates to reduce your short term debt.

samuel.s

dunstonh wrote: »

Yes they can refuse and the FSA have actively encouraged them to refuse by telling the lenders not to use interest only as a way to make mortgages affordable. Some have attributed that to existing borrowing as well as new borrowing.

The FSA fears that interest only defers the problems to another day rather than resolves the problem. In your case, when moving back to repayment mortgage (if you ever did as many leave it as long as possible or dont bother - another problem) the repayment mortgage will cost more than it was before you moved to interest only. That can make the mortgage unaffordable.

To be honest, if you cant afford a repayment mortgage now with the interest rate you are on at this time then your problems are bigger than you realise. A move to interest only isnt going to help you. You should be using the money saved from all time low mortgage rates to reduce your short term debt.

OK. I think i am going to put off asking them.
My other question is it wothwhile switching my day to day banking to the tracker they have provided me with. My mortgage is with Norwich and Peterborough. I have a gold account with them that i have never used. I have about £2,500 go through my account in a month which is with one of the "Big 4" there is never any surplus left in the account as it all gets paid out on servicing existing debt and living expenses. So would there be any benefits? would it actually make any difference to the outstanding capital on the mortgage?

SouthCoast

there is never any surplus left in the account as it all gets paid out on servicing existing debt and living expenses.

Having problems with your mortgage payments?


http://mortgagehelp.direct.gov.uk/default.aspx

samuel.s

SouthCoast wrote: »

Having problems with your mortgage payments?


http://mortgagehelp.direct.gov.uk/default.aspx

Not having any problems at the moment paying the mortgage. Not missed or been late for a payment in 14 years.
Just need to start reducing my credit card debts and was thinking this maybe a way of doing so.

dunstonh

samuel.s wrote: »

Not having any problems at the moment paying the mortgage. Not missed or been late for a payment in 14 years.
Just need to start reducing my credit card debts and was thinking this maybe a way of doing so.

A good test on this is to ask if the situation would still be the same if the mortgage payments were to double.

Thrugelmir

samuel.s wrote: »

Not having any problems at the moment paying the mortgage. Not missed or been late for a payment in 14 years.
Just need to start reducing my credit card debts and was thinking this maybe a way of doing so.

Then the Debt-Free Wannabe board may be a good place to start.
Rather than look for an easy option. Tackle your credit issues head-on. Good luck.