Interest only Mortgage help

JackTait

Hi all

While relatively savvy when it comes to most things money, I have very little idea how interest only mortgages work. This is now an issue for me as my mother-in-law requires some advice on her mortgage, which is interest only. 

The mortgage is up 30th June 28 

It has 3 sub accounts as follows 

£11,502 - repayment
£9388 - Interest only
£338 - Repayment 

Total - £21229 

Ultimately, I want to know where she stands? What does she need to pay per month for the remaining term to pay it all off? Is it as simple as dividing £21,229 by the remaining months? 

Is switching to a repayment mortgage likely to be an option? Or even better? 

My limited understanding of interest only mortgages is there is a plan to pay off the remaining balance by end of term, but there is no real plan in this case. She is recently widowed and has never dealt with finances at all. 

Thanks in advance 

CSI_Yorkshire

JackTait said:

£11,502 - repayment
£9388 - Interest only
£338 - Repayment 

Total - £21229 

 What does she need to pay per month for the remaining term to pay it all off? Is it as simple as dividing £21,229 by the remaining months? 

Plus the interest that is incurred each month on each part.  It would be £21229 to pay it off today.

Interest only mortgages are exactly as they sound.  You take out a loan for £50k, pay only the interest each month, and still have to pay off £50k at the end.

MWT

JackTait said:

It has 3 sub accounts as follows 

£11,502 - repayment
£9388 - Interest only
£338 - Repayment 

Total - £21229 

Ultimately, I want to know where she stands? What does she need to pay per month for the remaining term to pay it all off? Is it as simple as dividing £21,229 by the remaining months?

If she keeps paying whatever she is paying now, assuming all three sub-accounts have the same end date (do check this), she will reach 30th June 2028 and will have to pay the lender £9388 on that day.

So short version is she needs to accumulate £9388 over the time between now and then... (assuming she doesn't already have that amount in savings...)

Switching that sub-account to repayment will do the same, but without the flexibility to manage her savings as she sees fit between now and then, but the discipline may be helpful if she is not likely to be able to manage the process month to month...

TheAble

The repayment sub-accounts I would expect would naturally be fully paid off in Jun28, assuming all 3 sub-accounts have the same end date. In  the meantime she will just be paying the interest on the interest-only subaccount. This will be due in full on the expiry date. Hence she should start making some payments towards it (bank will probably convert to repayment on request) or else save the money elsewhere to pay off in a lump at the end.

silvercar

The problem area is the £9388 which would still be owing at the end of the term. But she has options, she could take a secured loan or an unsecured loan at that point. The lender may agree to extend the term on that one, even if they didn't, she would have some more months to pay it off and even if a lender went to caught it isn't cut and dry that a court would grant possession for a relatively small sum.