Interest Only - Short term solution?

yesfan

I'm due to re arrange my mortgage soon, but also have a few debts I wish to get rid of. I dont want to add the debts to the mortgage, but if I continue with a repayment mortgage, will only be able to clear the debts over a long period of time.

If I was to choose a 2 year interest only deal to free up some cash each month to clear the debts within this period, how would it affect my mortgage long term? I would return to a repayment mortgage at the end of the 2 years. I realise my re mortgage amount would still be the same at the end of the 2 years, and I probably would inccur two lots of fees. Or am I missing a more obvious option. Cheers.

Mortgage amount £115000
Debt total £20000

mightymouse

Hi

You do not say what debts you are trying to repay but:-

1) they are probably at a higher interest rate than your mortgage.

2) you say 2 years but can you repay £20,000 over this period? bearing in mind your mortgage is not being reduced.

You do not want to add the debt to your mortgage but it might be one way forward and then pay as much as you can afford into the mortgage account within the set parameters and keep going in that direction.

There is then no need to keep re evaluating evrything.

These are my thoughts.

CLAPTON

on a like for like basis and assuming the interest rate is lower on the mortgage than on the debts then its cheapest to add the debts to the mortgage.
the great danger of any consolidation is that you dont correct the spending that caused the debt and simply run it up again

yesfan

The debts have different rates but are mostly higher than a mortgage rate. If I add the debt to the mortgage, then I will end up paying it over the remaining term, which is 19 years. Although I will not notice it as much, surely that will cost me more that way?

Probably wont completely clear the £20000 over the 2 years, but will make a big hole in it. If I went for the interest only option, along with a few other changes, I have calculated on freeing about £700 a month to directly reduce the debt. Leaving me a managable figure when I return to a repayment mortgage. Most of the debt has been inherited (kids!) and believe me, there wont be any reoccurance. There will be a monthly payment coming from this source also which is included in the £700. Basically need to reduce the interest amounts, maintain some fragile credit ratings and release the pressure if I feel like letting the kids off a few quid in the future :-)

herbiesjp

yesfan wrote: »

The debts have different rates but are mostly higher than a mortgage rate. If I add the debt to the mortgage, then I will end up paying it over the remaining term, which is 19 years. QUOTE]


Not necessarily.

By making the overpayments into the mortgage, as opposed to the other debts to clear this consolidated £20k, you will be reducing the mortgage term.

As long as you are focussed to clear the £20k more quickly, you can dfo it it the same amount of time, even if you did add the £20k onto the mortgage

HTH

yesfan

Can I overpay an interest only mortgage?

herbiesjp

Indeed you can

yesfan

Think that could be the way to go then....cheers.

scoobysue_4

yesfan wrote: »

I'm due to re arrange my mortgage soon, but also have a few debts I wish to get rid of. I dont want to add the debts to the mortgage, but if I continue with a repayment mortgage, will only be able to clear the debts over a long period of time.

If I was to choose a 2 year interest only deal to free up some cash each month to clear the debts within this period, how would it affect my mortgage long term? I would return to a repayment mortgage at the end of the 2 years. I realise my re mortgage amount would still be the same at the end of the 2 years, and I probably would inccur two lots of fees. Or am I missing a more obvious option. Cheers.

Mortgage amount £115000
Debt total £20000

hi, i have just spoken to my bank the halifax to ask if i can switch to an interest only mortgage for 6 months until my working hours increase again and then switch back to the repayment, as i have a defecit of 70.00 needed to meet my monthly outgoings due to hrs of work being reduced, so not massive debts,(mainly arrears with all utility bills and council tax) but the halifax want me to put everything into writing to show why i want to switch to interest only before they make a decision, but i know its possible, im told if i switch to interest only it wont incur charges for a short period but it does affect any credit rating, were you informed of this too?, it doesnt concern me too much as i avoid applying for credit anyway

JoeK_3

yesfan wrote: »

The debts have different rates but are mostly higher than a mortgage rate. If I add the debt to the mortgage, then I will end up paying it over the remaining term, which is 19 years. Although I will not notice it as much, surely that will cost me more that way?

Probably wont completely clear the £20000 over the 2 years, but will make a big hole in it. If I went for the interest only option, along with a few other changes, I have calculated on freeing about £700 a month to directly reduce the debt. Leaving me a managable figure when I return to a repayment mortgage. Most of the debt has been inherited (kids!) and believe me, there wont be any reoccurance. There will be a monthly payment coming from this source also which is included in the £700. Basically need to reduce the interest amounts, maintain some fragile credit ratings and release the pressure if I feel like letting the kids off a few quid in the future :-)

Why does everyone assume that debt consolidation means that you need to add debts to the mortgage term?

Some lenders will allow you to have a mortgage term of say 19 years and a loan on say 5 years with both on the same interest rate.

JoeK