Interest only mortgage and Negative equity

CC64

Hi
Before we married my wife paid £145k for a house using a 15k deposit and an interest only mortgage. She bought when prices were high in 2007. We rent the house but still have to top up the rental income to cover the monthly mortgage payments. The house may only be worth 75k at the minute. Is it possible to switch the type of mortgage repayment with her lender whilst in negative equity with a view to reducing the 130k capital borrowed? We do not have any investment plans in place to repay the capital amount but we do have some savings. We do expect house prices to rise slowly but we don't ever expect to break even. Anyone out there who has dragged themselves out of a similar situation?

getmore4less

Simpler to just overpay rather than be committed to a higher payment.

I would keep a decent amount back to cover rental voids and maintenance.

hillcats

I'd imagine the lender would be more than happy to convert the mortgage to repayment, but there would be no going back to interest only though...

You would however make yourself liable for higher monthly payments to enable the capital debt to be cleared. Maybe it would be better if you could find out how much additional you'd need to pay if transferred to repayment mortgage and just make overpayments towards reducing the capital.

warwicktiger

Most interest only mortgages allow payments to reduce the balance, so as above, no need to commit yourself, just pay down chunks at a time, as and when. Don't forget though that the interest payments you are making are offsettable against income tax, so consider setting up a savings vehicle (ISA?) To build up a capital sum, which you can choose to use later to clear this mortgage

Thrugelmir

As has already been suggested. Overpay the mortgage. What you need to consider though is that as the interest you pay falls. More than likely the taxable income will increase. Resulting in a higher tax liability.

Do you have equity in another property?

getmore4less

I doubt tax relief will be an issue for a while.

We rent the house but still have to top up the rental income to cover the monthly mortgage payments

Overpay till the rent covers the interest then review.
(assuming this is your highest rate debt)

eg a topup of £100pm on a 5% mortgage requires overpayments of £24k.

CC64

getmore4less wrote: »

I doubt tax relief will be an issue for a while.

We rent the house but still have to top up the rental income to cover the monthly mortgage payments

Overpay till the rent covers the interest then review.
(assuming this is your highest rate debt)

eg a topup of £100pm on a 5% mortgage requires overpayments of £24k.

Thank you all for taking the time to reply.

Overpaying until the rent covers the interest then review seems the most palatable option. I imagine it may mean asking the lender to accept a lump sum as well otherwise it may take years to bring the monthly payments down. Is that feasible?

Thrugelmir

CC64 wrote: »

I imagine it may mean asking the lender to accept a lump sum as well otherwise it may take years to bring the monthly payments down. Is that feasible?

The amount you can overpay will depend upon the terms of your mortgage product.

Gentoo365

hillcats wrote: »

I'd imagine the lender would be more than happy to convert the mortgage to repayment, but there would be no going back to interest only though...

This may not be true as the lender may fail them on the affordability for a repayment mortgage.

It would could be 'misselling' (well, poor advice) on the part of the lender if they suggested that the contract should change to increase the payment.