Switching from repayment to interest only - help

Paulio15

Hi all,

We’re into the last 7 months of our mortgage ‘fix’ on a tracker with Barclays. 

While we’re up to date with payments, the rate increases are putting some pressure on our bank accounts and we’re burning through savings quicker than we thought - we’ve gone from paying c.£900 a month to £1500 so a considerable increase.

While we wait out the period until we can switch to a fixed rate (or not depending on what the next few months hold!) we’d like to consider our options in reducing the outgoings in the short term.

One option we are considering is moving to an interest only payment for the short-term, my questions are: 

1. Is this feasible?
2. Will this impact any future chances of remortgage with the current lender?
3. Will this impact our credit score?

We expect to live in the house for the next 10 years and have increased our equity in the property by 30% in 3 years so not in a rush to pay off now or sell anytime soon.

Thanks!

K_S

@paulio15 Switching to interest-only temporarily is unlikely to be feasible without speaking to the lender, professing an inability to pay and then reaching an arrangement with them on temporarily reduced payments. This will severely impact your credit history, making it pretty much impossible to re-mortgage (change lenders) to a mainstream lender for a long time. Whether or not it will impact product-transfers (staying with Barclays), I'm not entirely sure.

What I would recommend doing is speaking to Barclays about increasing the term. You are lucky in that Barclays are one of the lenders that allow going up to 80 on the term assuming a retirement age of 80 is plausible in the kind of work that the oldest applicant does. So in theory you could go all the way up to a 40 year term if you're under 40. This might involve underwriting and assessment of your finances.

Even with a longer term, there's nothing stopping you from making overpayments if you want to and achieving the same impact as a shorter term, I hope that makes sense. 
https://blog.moneysavingexpert.com/2014/10/dont-shorten-your-mortgage-term-if-you-can-overpay/

If you're on a Barclays tracker, it should be ERC free so that shouldn't stop you from switching to a fix if that's what you want to do. They have some good rates for long fixes that you could consider if you want some certainty and aren't looking to move anytime soon. As you'll be staying with Barclays there'll be no income/affordability/credit checks involved.

Paulio15 said:

Hi all,

We’re into the last 7 months of our mortgage ‘fix’ on a tracker with Barclays. 

While we’re up to date with payments, the rate increases are putting some pressure on our bank accounts and we’re burning through savings quicker than we thought - we’ve gone from paying c.£900 a month to £1500 so a considerable increase.

While we wait out the period until we can switch to a fixed rate (or not depending on what the next few months hold!) we’d like to consider our options in reducing the outgoings in the short term.

One option we are considering is moving to an interest only payment for the short-term, my questions are: 

1. Is this feasible?
2. Will this impact any future chances of remortgage with the current lender?
3. Will this impact our credit score?

We expect to live in the house for the next 10 years and have increased our equity in the property by 30% in 3 years so not in a rush to pay off now or sell anytime soon.

Thanks!