Why can't I switch to interest only?

dollydaydreams_2

I have had a 2 yr fixed repayment mortgage with Nationwide for the last 13 months. I have no arrears and have been comfortably making payments until now.

I am going to be starting a 1 year teacher training course in September and therefore my income will drop significantly. I asked Nationwide to switch me over to an interest only mortgage for the next 12 months but they refused. I fully intend to switch back to repayment once my course has finished and I am earning more again. However, Nationwide have said I can't move to interest only unless I have 150k equity (which I don't) and that my only option is to apply for a payment holiday. I would rather not take a payment holiday as I don't want to end up paying interest on interest.

Is this really my only option? I thought switching to interest only was much more straight forward? Friends of mine have only ever had interest only and seemed to be approved for these without any fuss. Help!

razdaz

dollydaydreams

Do you have an isa

dollydaydreams_2

No we don't have an ISA but my partner has a with profits investment. Does this make a difference?

dunstonh

ISA is a tax wrapper. With profits is an investment fund that is held within a tax wrapper. For example, you can hold with profits in an ISA, pension, investment bond or endowment.

razdaz

dunstonh

I moved to interest only with Nationwide using a new isa as a payment vehicle.

Maybe i am special.

dunstonh

razdaz wrote: »

dunstonh

I moved to interest only with Nationwide using a new isa as a payment vehicle.

Maybe i am special.

I think I miss what you are saying. So I will summarise what you have.

You went interest only with an ISA. The ISA is not the investment. It doesnt make or lose money. It is just the tax wrapper that contains the investments. Its the investments that perform. It is possible although unlikely, that you could have With Profits in your ISA. You could have shares, investment trusts, unit trusts/OEICs or SICAVS amongst other things.

Comparing With Profits with ISA is a bit like comparing a car against petrol.

wisbech_lad

It is their money they have lent you - so their rules apply. Recent turmoil in the markets have made all institutions much more wary of lending money now, especially on risky stuff (self cert, IO). Probably if you asked eight months ago, no problem - but this is now.

Your other option I guess is to go see a whole of market broker, and see if you can remortgage with another lender on an IO. But given you are on a two year deal - there will be ERC I suppose.

How about a payment holiday, save the IO payments yourself in a ISA, then when you start repaying, use the savings to overpay/ repay as much of the capital as possible? Basically a "DIY" IO mortgage. You'll still lose a bit though

david29dpo

As you are in the middle of a 2 year deal, it would be unwise to re-mortgage due to the ERP. Many lenders will not allow changing to interest only, Halifax included, without a repayment method in place, unless you actually miss a payment.