Will changing from a repayment mortgage to interest only affect credit rating?

Chesntoots

I originally posted this in the wrong forum....

It's not actually for me (I've just about got myself sorted - see signature - yay...)

Without too much detail, my boyfriend has his own business which was having financial problems. To cut a long story short he had to borrow off a credit card to pay out his business partner and about 4 months before we got together he changed his mortgage to interest only to try and get himself on an even keel.

The reason for the query really is that if he is financially compromised by changing his mortgage then I have suggested that he contacts the CC company to try and make a payment arrangement for a short period of time. I figure that if it has already had an effect on him then the CC thing wouldn't make much difference...

Hope that makes sense...

ACG

It doesnt (not to me anyway...but im not the easiest to confuse).

However....having a mortgage on interest only will have exactly the same effect on your credit report as a repayment mortgage.

Chesntoots

Thanks for replying...

I guess what I was trying to say was if having to be moved onto interest only messes up your credit rating then making a payment arrangement with a CC wouldn't make it any worse...

If it doesn't have any effect though, he might have to look at something else for a bit of breathing space.

ACG

im confused.

Changing a mortgage to interest only will not effect his credit file any differently than a repayment basis - if hes late it has a negative affect, if its on time a positive one.
The monthly payments will be less on interest only - but overall he will pay more.

So being late on a mortgage and sorting out a payment plan on a credit card is going to be very bad as its 2 negatives knocks on his file then. One is bad enough in the current mortgage lending climate.

Thrugelmir

Was the switch to interest only for a temporary period only?

An arrangement to pay in addition suggests that matters are approaching crisis point.

jamesd

There's no likely effect on a credit score from having or changing between interest only and repayment mortgages. I'm assuming that he's changed to a proper interest only mortgage product, not switched a repayment mortgage to making interest only payments as an arrangement with the mortgage lender.

Don't make a payment arrangement! That shows up on the credit record as a series of negative marks for as long as the arrangement is in place.

If he's using a repayment mortgage but under an arrangement with the mortgage lender is only making interest payments that is probably more damaging than an arrangement on unsecured credit like a credit card. This also shows up as an arrangement but because it's for secured credit the damage is likely to be greater.

His best option is likely to be a 0% for purchases credit card to cut the interest bill and let him clear the card borrowing more quickly, at lower cost. If he can get one.

He should get his credit report from Noddle, it's free and will tell him what is being reported to the credit reference agencies. Once he knows what is being reported that'll make it easier to see what negative effects there might be and then decide what to do.

Chesntoots

Thanks for all your replies.

He switched his mortgage to interest only so thank you jamesd for putting my mind at rest about any negative implications.

With regards to the CC I have given him the above advice that seeing as changing the mortgage hasn't had a negative effect he should just stick to making the payments on his card as usual (he has been making his payments on time). I will mention the 0% transfer as I hadn't thought about that...

Thanks once again for everyone's help.

Thrugelmir

Chesntoots wrote: »

He switched his mortgage to interest only so thank you jamesd for putting my mind at rest about any negative implications.

Was this for a limited period of time though?

The lender would have performed a credit check in granting the request.

RenovationMan

There will have been zero impact to your OH's credit record and TBH, it's another example of how flexible an IO mortgage can be. Once you OH gets back on his feet tell him to hold onto his IO mortgage to take this flexibility into the future, but to make sure that he makes overpayments when his business is doing OK.

Good Luck.