Remortgage to interest only?

Puddickle · 27 March 2013 at 4:47PM

We're creaking under the weight of our credit card debts - but our 5 year fixed term on our mortgage has just come to an end so we are thinking about changing it... though even staying on the base rate mortgage would mean monthly payments are less.

We were wondering if it would be possible to transfer to interest only for a couple of years if we remortgage as this could potentially mean we could pay off our credit cards in 2 years rather than struggling for 6. After the two years, we would want to go back to a repayment mortgage.

I personally think that this would enable us to pay off our 'bad debt', and then give us more money - and possibly even enable us to move to a bigger house when the interest only term was up and debts paid.

I've read that interest only mortgages are a lot harder to get than they were 5 years ago. It seems simple in my head - can anyone see any potential pitfalls with this plan?

Let_Us_See · 27 March 2013 at 5:01PM

Yes. The difficulty of achieving and interest only mortgage! You don't mention your Loan To Value (mortgage to property value percentage), as this could be critical. Secondly, do you have a current repayment vehicle?

"I personally think that this would enable us to pay off our 'bad debt', and then give us more money - and possibly even enable us to move to a bigger house when the interest only term was up and debts paid."

Why is it "bad debt?" I imagine it wasn't bad when you spent it on your credit card and now you believe by changing to an IO mortgage all your worries will disappear, you will be richer, and move to a bigger house!! dream on and thank god a lot of lenders have stopped IO lending, if only to save people from their own foolishness.

Puddickle · 27 March 2013 at 5:12PM

We would have 85% LTV. No we don't have a current repayment vehicle - though I know you have to prove you can pay it off at the end if you take an interest only mortgage out, as I've never had a IO mortgage I don't know much about these.

'Bad debt' is the foolish amount we put on our credit cards. It is crippling us, it was stupid, people do stupid things. It was bad when we spent it too - but we were in a very different position to the one we are in now. We are now paying for it - in every way.

We have been paying it off steadily for the past 2 years, and we will continue to do so slowly and surely, and are snowballing our debts. It just seems that if we could make a really big dent in it then we could clear this big black cloud hanging over us.

I don't think having dreams is a bad thing... I have a 7 year plan to try and get a bigger house. Even snowballing our debt that should be possible.

shonzyd · 27 March 2013 at 5:15PM

switching to interest only may free up some cash now by way of reduced monthly payments, but whats the plan after to make up for the shortfall during the period of paying interest only?

Perhaps address the underlying issue of why the debts occured in the first place otherwise you may find you end up in a worst position in the long run.

shonzyd · 27 March 2013 at 5:19PM

and i dont think interest only is a good idea for you without a real plan of how to pay the capital back. in essence you are merely shifting one debt to another. paying off the credit cards instead of the capital - in reality you will still have debt to pay back at the end of it. perhaps seek some assistance on the DFW board.

Puddickle · 27 March 2013 at 5:40PM

A 2 year interest only mortgage should reduce our payments enough to pay off our debts in the duration. We are currently paying off £500 a month onto 0% credit cards. An interest only mortgage would free up another £400 a month more... so £900 a month.
At the end of the term we'd go back to a repayment mortgage - and therefore should have £500 a month extra.

Puddickle · 27 March 2013 at 5:45PM

We are no longer increasing our debt. We know what went wrong, and we are now trying to deal with it. We are throwing everything at trying to clear them - and have been steadily snowballing them for 2 years. We are tired and fed up of being tied to these debts, and want to find a way to get rid of them.

kidmugsy · 27 March 2013 at 6:23PM

How old are you? Do you want to try extending your repayment mortgage to 35 or 40 years?

Let_Us_See · 27 March 2013 at 6:51PM

Unfortunately, at 85% LTV interest only is not an option available to you. You don't mention your CC debt but is it too large to add to a re-mortgage, and then possibly consider either extending the term or making over payments to quickly reduce your borrowing, or both.