Temp switch to IO on mortgage to clear debt?

ferry

Just wanted to run this past you lot. An idea I had as an alternative way to clear some residual debt. Please pick holes in the plan, as always your feedback and guidance is valuable.

I had posted on anoher board but feel this is better placed here for more concentrated advice.

My current mortgage situation- house value around £475k / mortgage balance £100k / debts around 7k, terrible credit history but all payments to Santander completely up to date but a major is there are arrears on a 2nd charge which is in an arrangement. The other debts are self managed on token payments until I can come up with a better plan.

I would ask my current mortgage provider, Santander, to transfer to an interest only deal for a maximum of 3 years based on meeting their criteria of having:  at least £250k equity /good LTV and affordability. Repayment vehicle will come in the from of the sale of the house when we plan to downsize in about 5 years.

Use the surplus, now around £300 per month to clear the debts. Once all clear return to Santander Capital Repayment payments and overpay more to make up for being on an interest only deal for that time. This way I will not need to touch a small pension pot to clear the debts next year.

Obviously, I may fall down on the first hurdle as Santander may not agree with this. I do not want to take out a consolidation loan.

We cannot downsize just yet as we have young adults still living here.

Possibly the worst method ever posted on a way of clearing debts but as ever your positive or negative feedback is appreciated.

As I say, just a thought.

enthusiasticsaver

I am not sure Santander will agree to postponing repayments to prioritise a second charge debt. Have you cut back as much as you can to meet the second charge repayments? You are right in that a consolidation loan is a terrible idea. 

ferry

Thanks. Yes, we have looked at other areas too. We are mortgage prisoners on the 2nd charge due to the arrears and with it being Pepper Money who are broker only , theres little else that can be done without adding a broker fee into the mix.

The 2nd charge issue came about following the end of the cheap rate jumping to a very high SVR, temporary redundancy, and  means we now dont meet their fixed rate criteria

Any other thoughts therefore on my thory above? 
Thank you 

sourcrates

You have very few options as homeowners, what you suggest is not normally a recommended choice, but if it works for you, and if they will agree to it obviously, and as long as you are able to meet your expectations, it may be worth a try.

But I agree with enthusiasticsaver in that Santander may not be so keen on agreeing to that.

You could stay with the current strategy until you decide to sell, that would likely be the safest route.

enthusiasticsaver

Maybe do a soa to see if we can suggest anything else? 

https://www.lemonfool.co.uk/financecalculators/soa.php

WYSPECIAL

Is there anything else you can put forward as a repayment vehicle other than downsize, for example pension lump sum due?

I’ve no personal experience but when a friend wanted IO they were reluctant with selling the property as the means of repayment as come the time people don’t want to, or struggle, to sell and find somewhere else within budget of what they have left.

ferry

Thanks. The pension payment lump sum I can take next year at 55, and I agree probably a better selling point with Santander.