Interest Only Query

slg_sue

We have an interest only mortgage, which we took out several years ago as we were having financial difficulties. We want to start paying off our house but are not sure of the best way to go about this.

Currently remortgaging is out of the question as our credit ratings are in the toilet, but I don't see why that should prevent us from doing something positive in terms of ensuring our house is ours at the end of the mortgage term. I just don't know which repayment engine to go for investment, savings it's all foreign to me:eek:

If someone could help I would be grateful, in a nutshell we will need £117,503.96:eek: in 17.5 years!

HappyMJ

I would suggest leaving it interest only and saving into a high interest ISA. As long as the ISA interest exceeds what you are charged on the mortgage then you are saving even more money. Then once you have saved up enough to clear the mortgage just clear it in one or keep it going until full term. You will also have the luxury of access to the money you have saved in case of emrgency....but it better be a good emergency don't dip into it too often as that will delay full repayment.

I'd calculate the savings required as amount needed £117,503.96 divide by the number of years left (17.5) then divide by 12....about £560 per month. If you save more than that you'll hit your target earlier. You will also earn interest which will help you hit your target earlier too.

kingstreet

If the mortgage rate is higher than the rate you get on any savings, make voluntary overpayments each month to the mortgage of as much as you can afford.

If necessary, reduce the amount you pay in a month where you are struggling. Ask the lender to apply any overpayments to a reduction of the term, not a reduction in the future monthly payments.

poppy10_2

HappyMJ wrote: »

I would suggest leaving it interest only and saving into a high interest ISA. .

Where do you find one of those? Not many ISAs paying more than 3%, which is probably lower than the rate on an IO mortgage for someone with a poor credit history.