Interest only mortgage / moving house query

ElleWoods

Apologies for the rubbish title but wasn't sure how to sum this up...

I currently have a repayment mortgage on my house that is fixed until April 2008. I took on the house after my ex and I split, and in order to do this I had to remortgage to 5x my salary and put it over 31 years (I am 34).

I'm a single parent with a 10 month old son and would like to move to an area closer to my parents. However, it's the same old story - the houses in that area cost more than in my current area, even houses that are smaller than mine, and I can't afford to increase my mortgage which means the houses I'd be looking at in the area I want are pretty much out of my price range.

However, a friend has suggested switching to an interest only mortgage in order to buy a house in the better area. Her idea is to get the interest only mortgage for a couple of years (overpaying as much as possible) then switch to a repayment mortgage in 2-3 years time when I will most likely earn more.

My first question is this: would I qualify for a larger mortgage if I went for interest only (in other words do they work out the amount you can borrow based on the repayments or the total amount borrowed)?

My second question is: would it be easy to swap from interest only to repayment after a few years?

My third question is: is this a good idea?!

Anybody have any views/comments/suggestions or have done similar?

Thanks,
CC
x

drummer_boy_2

Hi Cuba
You say that you are in a fixed rate until April 2008, how much is the penalty if you were to away from the lender?
With regard to going interest only, most lenders will base your borrowing capacity on either your salary multiples or affordability, I would think long and hard about going interest only, I understand why you are considering this option but have you also considered the additional cost of not repaying the capital amount of your mortgage off.
In respect of your second question should you wish to proceed with this you could change to repayment at a later date if and when it becomes affordable.

Hope this helps

db

herbiesjp

Can you port your current deal? Is your income enough to take on the new mortgage?

Can you post some figures on what you are looking to do?

beachbeth

Another option is to take out a part interest/part repayment mortgage. You don't have to do it half and half you could put any amount as repayment and the rest as interest only. This way at least you are chipping away a little bit at your mortgage and you can always change later to a complete repayment if the finances allow.

This is one quote I got from my present lender (because we are thinking of moving and getting an interest only mortgage ourselves):

These are quotes at a rate of 5.89% fixed for 5 years

Mortgage of £83,000 over 25 years - Interest Only - £407.39 per month

Mortgage of £83,000 over 25 years - Repayment Mortgage - £529.20 per month

Mortgage of £83,000 over 30 years - £43,000 repayment
and £40,000 interest only - £451.10 per month

This gives you an idea of the difference in the repayments depending on which way you go.

ElleWoods

Thanks to everyone for replying. It's really interesting that you can split it, I didn't realise you could do that. I think at the moment I'm best not doing an interest only as I don't want to risk not having the capital to pay it off at the end, but I'll definitely look into going some repayment, some interest only.

Thanks!