Heading towards financial tough times. Should we go interest only for a while?

red30563

My husband and I are in something of a pickle and heading towards some very tough times. Briefly: he has lost his business due to serious mental health problems. It was a franchise and Head Office have deemed him unfit to run it so ended his franchise contract (Long story in itself. Much more to it than that. Solicitors are involved.)

So currently he has no income and is in the process of seeing if he can claim some sort of benefit.

I run a small limited company. We have been severely affected by the recession, and other factors, and I am having to take a huge pay cut, from June onwards for the forseeable.

We have savings which would last us approx 6 to 8 months if it was all we had to live on. We have already had to dip into savings over the last few months, for large bills, roof repair etc, as hubby hasn't earned anything from his business in recent times due to his health issues, and my wages aren't really enough for us to live on.

We have a repayment mortgage, on a 10 year fixed rate (until March 2018). The 25 years of the mortgage ends in 2028.

We have spoken to the BS we have the mortgage with. They have said we could go on to interest only for a while to reduce our outgoings. The other option, of course, is for us to keep paying the whole repayment amount (£630 pcm), using my reduced wages and our savings as necessary.

I don't yet know the details of what the reduction in payment would be if we do interest only.

I have no experience of it so are there any pros or cons to going interest only for a while? Presumably it will lengthen the repayment time of the mortgage.

Any help or advice very gratefully received.

Thrugelmir

A switch to interest only would only be granted on a temporary basis, perhaps 6 months to a year. So you need to have a long hard think and plan for the longer term. Particularly if your reduction in income is permanent.

Joe_Bloggs

Seek alternative paid employment and/or rent out a room. Either way it looks like the businesses are not worth the effort.
J_B.

red30563

The reduction in my income won't be permanent. My fellow director and I (we co-own the company) are doing it to ease the business's finances in the short term. We will either have to work out a way to increase the company income or possibly sell it on. (Again, another long back-story here, as you can imagine!)

We don't have a spare room to rent out, unfortunately.

ItMightBeUsefulOneDay

red30563 wrote: »

So currently he has no income and is in the process of seeing if he can claim some sort of benefit.

I run a small limited company. We have been severely affected by the recession, and other factors, and I am having to take a huge pay cut, from June onwards for the forseeable.

You need to sit down and ask yourself some serious questions here in relation to how long this situation is likely to continue. Will your husband be able to get back to some form or work in the near, mid or long term? Will your business pick up in the near, mid or long term? This recession is likely to drag on for some time yet, certainly there's still a lot that the PTB don't know or aren't prepared to accept.

Well done on getting 6-8 months of living expenses behind you, this gives you breathing room to take stock of the situation and look long term. It may be better to sell the house now, while you have time and can keep your credit rating in one piece rather than wait for the crunch moment.

Joe_Bloggs

I don't yet know the details of what the reduction in payment would be if we do interest only.

If you take the amount you owe on your mortgage and then multiply it by your mortgage interest rate you will get the yearly interest on your mortgage. Divide this by 12 etc ...

Cool or even cold logic is what is required in this situation. There is no room for sentiment clouding ones business judgement.

J_B.

The_J

You haven't got any insurance have you? MPPI and Income Protection (PHI) could both feasibly pay out in your husbands situation.

DVardysShadow

Go interest only.

But don't breathe a huge sigh of relief and carry on as normal. Just take it as a little more breathing room to think through and implement a long term sustainable plan.

cattie

Because you husband has serious mental health problems, involve as many medical professionals as you can, ie; gp, psychiatrist, cpn etc. for back up and put in a claim for DLA. If you have a branch of MIND near you, then contact them for help in filling out the forms as obviously they are very experienced in handling claims for people with mental health issues.

If he has a sucessful claim then this will help swell the income a little and take a bit of the stress and worry away.

Good luck.