From repayment to interest only dilemma

nonsoloinglese

I have a an 800k house with 455k mortgage and with three kids under 5 I have started to feel the pinch of having to hire a nanny as my wife returned to work to keep her job as she is still in GP training.

I am on a weighted 3.53% repayment coming in at 2337/month but am seriously tempted to move to an interest only mortgage for the next couple of years that will enable me to do the following:
- house improvements
- give us more space to help with childcare costs

Once my wife has fully qualified her salary will increase meaning the nanny deficit will disappear and at which point I will look to move back to repayment.

My questions are:
- is this a justified strategy for the lender?
- Given the changes to the law I see that lenders require you to have a repayment plan, what is the lender looking for?

Thanks in advance!

csgohan4

I very much doubt a Gp trainees salary doubles overnight lolz.


Even if she did OOH or Locum sessional work, the minimum 13k medical indemnity insurance will outweigh the benefit. Plus OOH is usually when GP's practices shut i.e unsocialable hours. Also generally no pension contributions as a locum.


Assuming she becomes a partner after training, the salary is comparable to Salary GP's, but the big difference is it can go down as well up and she will have to do more work and expect to stay longer, till 10pm in some cases for no overtime pay. That's assuming it's not a buy in partnership where she either has to get a loan or have a salary scheme to pay for it.


I would be more realistic when she actually gets the job after qualifying than being over optimistic. It's not a good time to be a GP at the moment. The Government is clamping down on NHS in general.

nonsoloinglese

Thanks - I am aware of the GP issues Excuse my exaggeration it is better to say we will be in a better position then than now for both salaries and lower childcare costs.

My point is that I can prove consistent bonus over past 4 years and even taking half of the bonus would see my payment schedule and balance reduce like a repayment.

onlyroz

Is a nanny your cheapest childcare option? Have you considered nurseries or childminders? And how long before your eldest starts school?

nonsoloinglese

onlyroz wrote: »

Is a nanny your cheapest childcare option? Have you considered nurseries or childminders? And how long before your eldest starts school?

Our eldest is at school, he is 5 years old, middle child is 3 years old (September 2016) and the youngest 19 months. Given the working hours and number of children the nanny is the easiest option. I work in London and my wife locally but I leave very early and return at 7.30pm and my wife is in the surgery before our eldest has to go to school.

It will be easier with time just a tough couple of years ahead of us.

wannabeprudent

onlyroz wrote: »

Is a nanny your cheapest childcare option? Have you considered nurseries or childminders? And how long before your eldest starts school?

Also with nursery or childminders there is also option for you both to get childcare vouchers with associated tax savings

nonsoloinglese

wannabeprudent wrote: »

Also with nursery or childminders there is also option for you both to get childcare vouchers with associated tax savings

I am all over childcare vouchers and we have explored all the options. There are times of the day where we would just be stuck every day of the week meaning the Nanny is the only option.

Thrugelmir

nonsoloinglese wrote: »

My questions are:
- is this a justified strategy for the lender?
- Given the changes to the law I see that lenders require you to have a repayment plan, what is the lender looking for?

Lenders assess the situation as is. Speculation and/or assumption does not form part of the their process. Your decision to employ a nanny. If it's not affordable as matters stand. Then up to you to make the necessary financial adjustment.

An alternative plan to repaying some of the capital every month, i.e. selling other assets, using a pension scheme etc. Though you'll already need to show a substantive sum accumulated to convince your lender. Around 96% - 97% of new mortgages are now repayment. As in reality there are few realistic alternatives for the majority of people.

Around

Goldiegirl

I think the lender would not agree to your plans, and would not allow a switch to interest only


The sort of repayment plan they are looking for are things like investments such as stocks and shares ISA, a pension plan, or a property portfolio.


It wouldn't be sufficient to say my wife will earn more in a few years and I'll switch back to repayment in a couple of years time.


That is too vague - what happens if your wife never qualifies or you 'forget' to switch back to repayment. Those sort of things would worry the lender, so they'd decline your request.


As has already been suggested, maybe you'd be better off looking at cheaper forms of childcare or one of you puts their career on hold until all the children are at school.


Or even more drastic - downsize the house to a level where you can afford the mortgage and the nanny

nonsoloinglese

My mistake for not being clearer. My salary + bonus easily clears my outgoings. Receiving a bonus annually is not so ideal in my situation as it is lumped. The plan to move back to repayment is something I would not share with the lender I prefer repayment but would like flexibility in the shorter term.

I would present the following:
- Overpay monthly to reduce mortgage size (the interest amount would allow me to pay an additional £1k a month of off capital and still be £700 month cheaper.
- Annual overpayment from bonus or growth or investment into ISA.
- I have stocks and shares ISAs/pension investments which is growing from contributions through work and capital / dividend growth.

Thanks for all the help.

Thrugelmir

nonsoloinglese wrote: »

My mistake for not being clearer. My salary + bonus easily clears my outgoings.

Then why should the lender agree to your proposal. As there's no hardship.

Perhaps use some of the ISA funds to reduce your mortgage debt and therefore your monthly outgoings.