Interest Only Mortgage Payment Advice

AgentDRL

Hi,

Me and my partner went onto interest only payments on our mortgage with NR (now NRAM) two years ago (Aug 2009) as I went down to a reduced wage, and she was working p/t as our little one was still in nursery. We bought the house in Aug 2005, so we have paid 4 years on repayment before switching.

I received a letter from NRAM stating that our payments are going to switch to Repayment from 1st Aug, which is fine because I was expecting the letter. I rung them up this morning, and the lady on the phone (who was very helpful and understanding) said she will send out the forms to extend it for another year (just waiting for these).

I was just wondering how long to temporary swiches to interest only mortgages last really. My guess this differs from lender to lender.

I am really keen to switch back to Repayment, and I have been extremely lucky to find a new job which pays a good deal more than what I was on in my previous role, but my partner is still not in a position to help me with the mortgage until the middle of next year (goes back to work full time and finishes paying off one of her large loans). I can afford to make overpayments staying on interest only for a further 12 months if needs be.

Did not want to switch to interest only in the first place, but had to out of necessity. Having said that, 2 years (and wanting an extra 12 months) isn't a great deal of time on interest only is it?

Thanks.

Occams_Razor_2

interest only mortgages are great options, if you plan to own for life of mortgage.
the same way inflation erodes your inflation, it erodes your debt.

AgentDRL

Occam/s_Razor wrote: »

interest only mortgages are great options, if you plan to own for life of mortgage.
the same way inflation erodes your inflation, it erodes your debt.

Sorry, I don't follow. Could you explain? Apologies again for being daft, I am a newbie after all, lol!

Thrugelmir

Time passes quickly. Every month you are on interest only you are only renting your property. Interest rates will rise in the future. So more of your income will be paying interest and not capital. While you may not be able to make the same repayments as you would on a repayment mortgage. Overpaying by whatever you can afford may well worth be considering.

ViolaLass

Occam/s_Razor wrote: »

interest only mortgages are great options, if you plan to own for life of mortgage.
the same way inflation erodes your inflation, it erodes your debt.

Great, sure, except when you have to pay the capital back at the end. Not many banks will let you stay interest only forever.

AgentDRL

Thrugelmir wrote: »

Time passes quickly. Every month you are on interest only you are only renting your property. Interest rates will rise in the future. So more of your income will be paying interest and not capital. While you may not be able to make the same repayments as you would on a repayment mortgage. Overpaying by whatever you can afford may well worth be considering.

Thanks for the advice Thrugelmir. As far as I know, banks won't let you stay on interest only forever. When the form comes to renew for a further 12 months, I am going to state that since starting a new job, I can afford to pay roughly £200 more a month with a view to going back to repayment in a year. This way, hopefully, the full repayment figure per month will not be too high in Aug 2012 (but I suppose that's hard to predict).

I take it whatever I pay over the amount on interest only goes onto the capital?

Thrugelmir

AgentDRL wrote: »

I take it whatever I pay over the amount on interest only goes onto the capital?

Correct. You can make overpayments whilst on an interest only mortgage. This will reduce the capital balance owed.

So you could set up a standing order to make a regular payment. With standing orders you are in control so you are able to vary them as circumstances dictate.

AgentDRL

Thrugelmir wrote: »

Correct. You can make overpayments whilst on an interest only mortgage. This will reduce the capital balance owed.

So you could set up a standing order to make a regular payment. With standing orders you are in control so you are able to vary them as circumstances dictate.

Again, thanks so much for the advice. In the past two years whilst being on interest only and on a reduced income, I have managed to get my credit card debt down significantly plus worry myself silly about being on interest only and the implications. I have a new job that pays me 7.5k more a year, this will help me make payments a good deal more than the interest only payment, but about £150-200 less than the full repayment figure. I just hope and pray NRAM accept this! Hopefully with my partner being able to help me from this time next year, our only debt will more or less be the mortgage so we can 'attack' that so to speak ! Could hopefully look into changing mortgage companies to get the payments down a little if that's an option.

getmore4less

Why not just do the numbers rather than worry about unknowns.

OK you might not like the numbers but at least you are then going to worry about something real.

http://www.whatsthecost.com/mortgage.aspx

doing interest only for a year is the same as shortening the term by a year

mortgage details would be usefull but here is an example.

£100k mortgage over 20years @ 5% repayment is £660pm so years interest only and new payments ( IO is £417 )

0 £660
1 £680
2 £703
3 £729
4 £758
5 £791

SkintEarl

I am hoping to switch to interest only for 6 to 12 months in order to pay off other unsecured borrowing/DMP. Can anyone tell me what questions NRAM ask on the forms?

Thrugelmir

SkintEarl wrote: »

I am hoping to switch to interest only for 6 to 12 months in order to pay off other unsecured borrowing/DMP. Can anyone tell me what questions NRAM ask on the forms?

A high probabilty that your application will be declined. As NR will expect you to resolve your own financial issues. Why should they make it easy for you? As no lesson is learnt.