Interest only mortgage question

first78

I'm currently on a 2 year fixed rate repayment mortgage but this ends in 6 months. My partner left me 5 months ago and I'm currently struggling to manage full time work along with being a single parent.

I don't really understand how interest only mortgages work but wonder whether this would be a better option for me when I remortgage as it would lower my monthly payments. We bought the house 18 months ago for £220,000 and currently owe approximately £177,000.

I'm sorry if it's a daft question but how would an interest free mortgage work? Would this be a sensible option for me to consider?

[Deleted User]

Interest only very mortgages are very difficult to get. You would need a clear repayment vehicle.

Needing to pay less won't be seen as a suitable reason for going interest only.

Even remortgaging may be a struggle from what you say, which would leave you on your lender's SVR. You might want to post up some income details so you can get a clearer view of your options.If you're both on the mortgage, it may need to stay that way.

first78

I didn't realise they were difficult to get  

At present my mental health is suffering and I've been off work for 6 weeks with depression.

My full time salary is £34k. My ex currently pays me £1,000 monthly but I know this will not be sustainable in the long term. I also get £300 monthly from my Mum who lives with me.

My ex's Dad has terminal cancer, he owns his home outright which is worth approx £120k and my ex is his only child so will inherit this when he passes.

My Mum has properties abroad valued at approximately £600k, so in the future there would be possibility of me selling these and after paying taxes etc splitting the money with my sister.

I just need to find a way to manage now as continuing as I am is not sustainable.

K_S

@first78 Based on the limited info in your post, you are very unlikely to qualify for an interest only mortgage.

Being on long term sick leave can mean that you struggle to remortgage (change lenders or term) at all, though you should still have the option to move to a new product with your current lender without any income checks.

To keep your options as broad as possible, it's very important to ensure that you don't go into arrears on your mortgage. Soon as your credit report shows mortgage arrears, it will have a huge impact on your mortgage options in the short to medium term.

It's probably a huge upheaval, but it may be worth considering selling up and downsizing if that's an option at all.

400ixl

Interest only mortgages tent to be only used these days for people with rental properties where they are looking to maximise their income and use the property as the way to pay back in the future should they need to.

If you have an interest only mortgage then you will only ever be paying the interest value. The capital value will never reduce and will need to be repaid in full when the term is up (unless re-mortgaged). Traditionally people had an endowment policy which ran alongside the mortgage as the investment side. By paying into this the value grew over time to repay the mortgage when the term was up. Endowments are investments though and are to a degree unpredictable as to what they will be worth in the future, hence they became unpopular when they started to show a possible shortfall in the amount that will be repaid.

So by taking an interest only mortgage you would pay less than a repayment mortgage because you would not be repaying the capital. You need to put in place a way to repay that capital which will significantly reduce any savings in terms of monthly payments.

Most Interest Only providers will require a direct site of how it is going to be repaid before they will loan. The possible promise of inheritance is unlikely to be acceptable.

first78

K_S said:

@first78 Based on the limited info in your post, you are very unlikely to qualify for an interest only mortgage.

Being on long term sick leave can mean that you struggle to remortgage (change lenders or term) at all, though you should still have the option to move to a new product with your current lender without any income checks.

To keep your options as broad as possible, it's very important to ensure that you don't go into arrears on your mortgage. Soon as your credit report shows mortgage arrears, it will have a huge impact on your mortgage options in the short to medium term.

It's probably a huge upheaval, but it may be worth considering selling up and downsizing if that's an option at all.

I know I need to get back to work, but unless something changes to reduce the pressure on me I will end up going off sick again I feel so completely trapped.

Selling up is not an option just now unfortunately. I won't go into arrears on the mortgage but I need something to change to reduce the stress and the pressure

400ixl

You shouldn't take options such as downsizing, or moving to a cheaper area off the table as it may be the only option to meet your objective.

Is your current mortgage deal coming to an end? Interest rates are rising, so depending on what your current deal is, this may mean more rather than less (although your LTV could now be better allowing you access to better rates).

Extending the term may be another option for now. Going to a longer repayment period will reduce the short term payments (so say you currently have 20 years left, do a renewal over 30 years) but will mean paying more overall in the long term, but the potential inheritance in the future may resolve that.

RetSol

Hello @first78.  If you haven't already, I suggest that you also post on a different board, eg the Marriages, Family and Relationships board, as you will probably find people there who have navigated out of a similar predicament.