Interest Only Mortgage Advice

Julie67

Hi, we have been on an interest only mortgage for 10 years with 15yrs left to run. We owe 210,000 and the house is worth around 270,000. Currently we are on a dmp and working hard to pay off our debt.
We are trying to decide the best way to move forward.
These are the options we've come up with so far.
1. Sell the house and pay off the debt and rent
2. wait a few more years until the value of the house increases and sell and try and buy something outright with the profits (downsizing )
3. try and change over to a repayment mortgage, not sure if this possible and would they extend the length of the mortgage to bring the payments down?
4. Remortgage with a new lender, cant see this being possible with our credit history
I would really like to stay in my property if possible but obviously need to find a viable solution.
Are there any other options or solutions? i am 49 my husband is 54 and we are both self employed. Any help or advice much appreciated
thanks

brit1234

When you took out your interest only mortgage you were required to have a separate repayment vehicle like shares, inheritance etc. How much is your repayment vehicle worth?

Julie67

hi, no we where never advised about this. I know it sounds crazy but it wasn't mentioned at all. we fully intended to organise this but due to illness we just never managed to save anything towards paying off the mortgage.

Annisele

Julie67 wrote: »

3. try and change over to a repayment mortgage, not sure if this possible and would they extend the length of the mortgage to bring the payments down?

A (possible) alternative to this is to keep your interest only mortgage, but make overpayments.

If you work out what a repayment mortgage would cost (using your existing mortgage rate and term), then pay that amount each month, you'll effectively have a DIY repayment mortgage. You'd have to watch out for early repayment charges, and you'd have to reassess every time your interest rate changed, but if it's affordable that might be a good option.

Whether you can extend the term will depend in part on the income you're expecting to receive in 15 years time (and over the rest of your proposed term). If your self employment is in something where it's plausible for you to continue working into old age, lenders might be OK with that.

Thrugelmir

How long does your DMP have to run?

You've only £60k of equity so not much left towards downsizing once your debts are paid off and all costs are factored in.

Julie67

DMP has 7 years officially but I'm hoping its going to be quicker than that. My business is doing Ok and I'm managing to pay more than planned each month.
Yes I agree its not a lot but it would be dependant on house prices increasing

MortgageMamma

Julie67

My feeling is the most effective way of dealing with this is to stay put and make overpayments, or switch to a repayment mortgage. Depending upon which lender you are with some will consider lending into retirement if you can prove you have income in retirement that will be sufficient to service the balance of the loan at normal retirement date; Dp you contribute to a pension or have an old company pension lurking somewhere? If not, the overpayment route would be most likely the only one for you.

Who is your lender? are you tied into your current mortgage deal? My initial feeling is you may be wise to stay with your current lender and obtain a better rate once you are free from early repayment charges. It may be worth checking your original mortgage offer to see if you can make overpayments.

If for some reason you are in a property that is too big and expensive for you to run it may be prudent to downsize, smaller property_= smaller outgoings.

If you decide to sell the property to pay off debt and then buy another property afterwards you need to do some legwork now. Get a broker to do an affordability assessment for you to see how much you could afford to borrow once you were debt free, remember the term of the mortgage may be shortened because of your age, and this will impact how much you can borrow. If you are self employed you will need a minimum of 2 years accounts SA302s.

Thrugelmir

Julie67 wrote: »

DMP has 7 years officially but I'm hoping its going to be quicker than that. My business is doing Ok and I'm managing to pay more than planned each month.

Rather than increasing payments to the DMP. You could simply overpay the mortgage. This would at least reduce the debt owed and cushion you from the impact of future interest rate rises. Doesn't provide a total solution but at least heads you in the right direction.

Julie67

Hi, thanks for the replies. Our mortgage company is Mortgages One and no we are not tied in and there are no early repayment fees.
i think my next step will be to speak to the mortgage company and ask about the options open to us.
my business is run from home and will be something I plan to do way past retirement age, whatever that is these days.
I need to check if overpaying on this mortgage is an option.

chelseablue

What if house prices don't rise? Or even drop?


What part of the country are you in?

getmore4less

Julie67 wrote: »

2. wait a few more years until the value of the house increases and sell and try and buy something outright with the profits (downsizing )

Not really a practical solution as prices tend to go up on other properties as well, with only £60k equity you would have to move to a cheaper area or go very small.