Stuck in interest-only deal: advice?

Marshaller

Hi

We entered an interest only deal which held us for three years. Unfortunately, savings haven't risen enough for a decent deposit, house price valued lower and we weren't able to get a deal with any other provider due to the current situation. We want to go onto repayment but the repayments are too high without renegotiating an extended term, which no one seems willing to do. Hence, we feel a bit stuck and panicked. Can anyone offer advice if they are in the same or have experienced the same situation? Any advice would be very gratefully received.

Thrugelmir

Stay on an interest only basis and pay off as much as you can in the way of capital repayments, as and when you are able. If the rate of interest on the mortgage is higher than on your savings. Then use some of your savings to reduce the amount owed.

No easy answers just a long hard slog ahead.

Marshaller

Thank you for replying so soon. Can I ask what you mean by capital repayments: can we repay into an interest only as I thought it would only pay off the interest (shows you how ignorant we were at the time!) rather than the balance?
Thanks again :-)

Thrugelmir

In addition to your normal monthly interest payments. You should be able to make additional payments to reduce the balance owed. Check your mortgage documentation or with your lender to see if there are any restrictions. Most lenders welcome overpayments.

As you owe less, then you'll incur lower interest charges. So more of your money will reduce the capital balance owed. Mortgage interest is normally charged monthly. So anything additional you pay will have an impact.

Eonel

No-one need ever feel stuck in an interest only deal. If your mortgage provider does not allow overpayments then put whatever you can for capital into an ISA or savings account. Then when you come to remortgage, put those savings into the mortgage and effectively remortgage for less.

Might be a bit late for you to start this if you have been enjoying the lower interest only payments to date though.

ALIBOBSY

Most mortgages allow overpayments to be made, but not all and its not necessarily unlimited. Give them a ring and they can check for you how much you can pay each month. At least that way you are bringing down the capital by something.
You need to cutback now whilst rates are low and get that mortgage down before interest rates rise (and they will sometime). You may well have a couple of years if you are lucky before rates start to go up, but the longer you leave it the less time until the end of the mortgage term you will have to sort out paying off the capital. Unless you suddenly get a pay jump (not many people are in the sort of work where their wage can leap in a short time especially now, but it depends what you do) or win a big cash sum (even more unlikely) you need to start planning to get that mortgage cleared.

Best thing we ever did changing to a repayment mortgage-was a bit hard at first, but lovely now to see the figure come down each month and even manage a few small overpayments when we can (although not at the moment as OH is between contracts).

Ali x

ACG

You can usually overpay by about 10% each month (but double check this) without any penalties, however after the "deal" finishes (this is usually the first 2-3 years of the mortgage), you can then usually overpay by as much as you like without penalty...but again, double check this.

Basically, call the lender.
Find out how much you can overpay without penalty or if there is a penalty when that will end.

You will find that once you start the payments your required to make will come down and it will become easier and easier to overpay....like rolling down a hill.