Mortgage options - interest only or extend term

rewindrooms

Hi all,

My wife and I have separated. We have £164,000 left to pay on our mortgage with 18 years and 4 months remaining. The mortgage is split into two parts. £64,000 (2.1% interest and 8 years left on the deal) and £100,000 (2% but due to end at the end of this month and revert to 7.99%).

We have agreed that my wife will remain in the house until next April (for some family consistency) at which point we will look to sell (unless one of us is in a position to buy the other out, which is unlikely). My question is, what should we do about the mortgage term that is about to end? As it is unlikely that we will sell next year I'm not keen to sign up to a new 2 year deal due to ERC. This means that as things stand our mortgage will increase by £320 pm from next month. This would be a struggle to pay and we have been told that we would be able to revert to interest only for 6 months or increase the length of the term (although both would obviously have an impact in the future should one of us stay in the house). 

Just wondering if anyone has any recommendations on which option would be preferable? If you were to go for interest only would you recommend doing that to the £100,000 or the £65,000 parts of the mortgage (both knock around £200 pm off). 

Thanks so much in advance.

CSI_Yorkshire

Both options actually increase the term - just that one deliberately does it and the other does it by implication (as you're not paying off any capital).

Extended term repayment still means that some of the monthly payments come off capital, so there would be more residual equity when you sell.

I think you mean as it is likely that you will sell next year then you don't want a fix (or any deal) with high ERC?  Sensible, but remember that doesn't mean SVR as there are often ERC free trackers available.

Going interest only on £100k @ 7.99% or on £64k @ 2.1% can't both be about £200pm savings?

rewindrooms

Thank you - it shows how confused I was, I didn't realise a tracker would not have an ERC (just checked and there is a two year tracker with no ERC). 

Just checked the figures and it says if we switch the £100,000 part of the mortgage to IO payments would drop from £887 to £668. If we drop the £64,000 part of the mortgage to IO it would go from £361 to £124. 

What kind of impact would going IO for 6 months have on future payments? I realise they would go up but not sure how much by?

CSI_Yorkshire

I think it would be like having an extra loan for the amount of capital that you haven't paid off in those six months, on the same terms as the mortgage part.

What's the monthly payment on a £1500 loan with an 18 year term at each rate? £15 maybe?

Andreg

rewindrooms said:

What kind of impact would going IO for 6 months have on future payments? I realise they would go up but not sure how much by?

Your lender should be able to provide you with this information.  For example here is a calculator provided by HSBC:
 Temporary Interest Only Mortgage Calculator - HSBC UK