Can I/Should I switch to interest only?

jellybean09

I am one of those 100% mortgage customers with Northern Rock. Signed up for a 5 year fixed rate in March 2007. £76,000 mortgage and £19,000 unsecured loan.

The house was a repossesion and needed more work than initially thought (despite surveyors etc going in), we ended up racking up a few more debts in the process. We are in a position where we can cover all our outgoings but we are literally just getting through each month. the costs of everything going up and being on wage freeze and having a 16 month old baby are adding pressure.

We are considering asking NR is it possible to switch to interest only for 12 months and the savings we make each month we can concentrate on paying off all the other debts and then going back to repayment. Our 5 year agreement is up in March next year so effectively (we are in negative equity) we will have to stay with NR unless we can raise enough cash by then (unlikely) but hopefully back on a repayment term.

Is this something that they would generally agree to from experience? im not sure what the savings would be we currently pay £700 (thereabouts) a month for the mortgage and loan our interest is just over 6% (in work so dont have figures to hand). Im not sure if they will switch the loan to interest only or just the mortgage and if the savings would even be worth it. Just after a bit of advice really as to realistically whether this is even an option and whether its a good idea to do.
Thanks

Thrugelmir

NR will perform a credit search and detect your other debts. So quite possibly decline your request.

Pay a visit to the Debt Free Wannabe forum. plenty of advice and support on there.

jellybean09

Why would you say they would decline? because I have other debts and would be using the money to possibly pay them rather than continue giving NR the money?

Thrugelmir

In essence yes. Switching to interest only to fund repayment of debt is a clear indication of bordering on financial difficulties. Should your financial circumstances change suddenly. Why should NR give preference to other creditors ?

Also the easy option rather than looking at your personal finances. Analyse where you spend every penny and cut out expenditure everywhere you can.

jellybean09

But the whole point of why I (im guessing most others) would do the same thing is to clear the debts that are causing difficulties to ensure that I put myself in a better financial situation and can guarantee monthly payments with ease to NR as opposed to struggling each month until possibly I end up defaulting in places and then creating an even larger mess.

Im not predicting this will happen, but realistically we have exhausted everything else. We have cut back everywhere possible and although the debts are being paid its a case of 'getting' through each month. Our fault and noone elses but I was under the impression things like interest only payments where for those very reasons. To make sure that people have the oppurtunity to sort their financial problems out before its more than a problem. I chose repayments when I was in a position to repay my mortgage. At this moment in time I feel that realistically I cant until I sort other issues out and as soon as I have done so I can continue paying my mortgage off as quickly as possible.

I appreciate what your saying though. Its NR's money at the end of the day.

Thrugelmir

Would switching to interest only for 12 months make a signficant reduction in monthly outgoings to realistically make an impact on your debts?

Or would it merely make life more manageable?

Sometimes life gets tough battling your way through it does have rewards at the end.

Alter_ego

You'd effectively be asking NR to pay your other creditors, why would they want to do that?

redpete

jellybean09 wrote: »

We have cut back everywhere possible and although the debts are being paid its a case of 'getting' through each month. Our fault and noone elses but I was under the impression things like interest only payments where for those very reasons.

Alternatively intrest only mortgages are for those people who have a plan to have the capital available at the end of the mortgage term to pay it off as a lump sum, not a way for people to borrow money who can't afford to pay it back.

NR have no guarantee that you will use the spare money to pay off other debts.

CloudCuckooLand

jellybean09 wrote: »

We have cut back everywhere possible

Maybe you have overlooked something. Post your SOA.

jellybean09 wrote: »

I am looking to purchase £3000 in BP shares maybe tomorrow.

What happened to the £3k ? Up/down, on the nags instead ?

Wh05apk

Thrugelmir wrote: »

NR will perform a credit search and detect your other debts. So quite possibly decline your request.

Pay a visit to the Debt Free Wannabe forum. plenty of advice and support on there.

Why would they perform a credit check? they already have the mortgage, they would ask for reasons why you are looking to do this, and details of o/s commitments.

Are you still in negative equity?

Thrugelmir

Wh05apk wrote: »

Why would they perform a credit check? they already have the mortgage,

Basic check to substantiate the application for change in terms.

An underwriter would need the full facts in order to make a considered decision.