Interest only or repayment mortgage????

i_need_help_3

Hi all, I'm struggling slightly with my outgoings at the moment. I own a house and live alone so i pay for everything myself. I was speaking to a friend of mine and he asked whether i was paying an interest only mortgage or repayment, i told him repayment and he said that if i'm struggling i should change it to interest only. His views are why bother having repayment and paying more if you are not planning on keeping the property forever because when i decide to sell it hopefully it will pay for itself. He has always opted for interest only and finds it so much better. I was just wondering what the majority of people do and whether i should switch to interest only.

BrandNewDay

The risk is that your house will not go up in value enough to pay for it when you plan to move. Interest-only mortgages have worked just great in the past ten or so years because house values in some areas have tripled. "Everybody" is now saying that that is about to come to an end, and house prices may actually plummet in value. However, it's never financially stupid to repay the loan... it's not lost money, but rather saved interest. If you're finding it difficult to keep up your payments, the first thing you should do is go the debt-free wannabe board here and talk about ways you can trim your budget. If it comes down to simply not being able to make your payments, then an interest-only mortgage may be something to do temporarily.

Biggie

I believe in Intreast only mortgages with some kind of flexible payment.
That way you have better control over how you pay, you can overpay when you can and even take payment holidays if you've made enough over payments.


This means you can pay your mortage based on the current circumstances,

you do have to be very deciplined though as many people probably wouldn't bother overpaying even if they can.

ameliarate

It is worth seeing a mortgage advisor. You may be able to re-mortgage and get lower payments, perhaps take the mortgage out over a long period. Interest only would be ok for a short while if it helps you get back on your feet. I had to do it for a year when my daughter got to 18 due to loss of tax credits, maintenance etc, but knowing I would sell the house and get somewhere smaller/cheaper at the end of that year.

Doozergirl

i_need_help wrote: »

Hi all, I'm struggling slightly with my outgoings at the moment. I own a house and live alone so i pay for everything myself. I was speaking to a friend of mine and he asked whether i was paying an interest only mortgage or repayment, i told him repayment and he said that if i'm struggling i should change it to interest only. His views are why bother having repayment and paying more if you are not planning on keeping the property forever because when i decide to sell it hopefully it will pay for itself. He has always opted for interest only and finds it so much better. I was just wondering what the majority of people do and whether i should switch to interest only.

What rate are you paying? ie. Are you shifting your mortgage when any discounted deals/fixed rates end. You will be abe to save significantly by remortgaging.

Interest Only mortgages are supposed to be supported by another savings scheme like an ISA. They were never meant for people simply to only pay the interest on a house. How on earth do you pay it off? It's just a particularly expensive way of renting if you're not paying off the capital. You cross your fingers that by the end of the term, you have enough to pay for the house!

i_need_help_3

Thank you all for the advice xx

I'm sure the interest rate stands at 5.9% and is fixed for 5 years. I've had the house for 11 months now so i've got a while yet till i can remortgage without a penalty.

I have just spoken to my mortgage lenders and for interest only they have given me a quote which is only £76 less than what i am paying now on repayment so i am thinking twice about it now, i don't think it is worth it to be honest.

Maybe i could look at extending the mortgage then, i'm just not used to this. I do quite well with the small amounts that you get with loans and credit cards but not this ha ha its doing my head in as to what to do for the best.

Doozergirl

Have you been over to the Debt Free Wannabe board in that case?

If you post up your state of affairs, everyone will help you with the areas that you can cut back in. You can save a lot of money quite painlessly. What is most important is that your mortgage gets paid each month.

i_need_help_3

i will definately take a look at that board.

I have a hard top convertible car that i hardly use as i travel on public transport to get to work therefore i would sell the car tomorrow if i could but i just can't seem to sell it, im guessing because it is the wrong time of year. Its a beautiful car, only 2 years old and really low mileage but no one is interested. If i could sell it - it would free up alot of money for me then i would be able to concentrate on my other debt.

Badger_Lady

Hia - I agree with half of what your friend says:

If you're struggling with outgoings, it's better to comfortably afford interest-only than to struggle with repayment and risk defaulting.

However, it's rarely a good long-term strategy - you should always have a plan for paying the mortgage off, other than market value.

I've been in a very similar situation to you, except I've thankfully got myself a big promotion and am now quite comfortable... I'm currently on interest-only because I know I will always be able to afford the monthly payments, and have the option of overpaying / setting up separate investments when I can afford to (which is every month at the moment).

So you can look at it as a flexibility rather than a choice.

Guy_Montag

Get a lodger, if there's room. Choose carefully, however. £4k, tax free should go some way to helping you financially.

Badger_Lady

Ooo, yeah - that too!

Switch the mortgage to interest-only with the flexibility to overpay, then pay your lodger's rent towards it.

When the room's empty (between lodgers), you'll be confident that you can continue meeting "minimum payments"... but when you're receiving rent you can pay the extra and know that your mortgage (and its interest!!!) is shrinking.

Edit: of course, the DFW experts will be able to advise on any other debts that should be paid off first...