Interest Only Mortgage Question

Heidi_Jane

Hi,

I have an interest only mortgage but looking to extend the term of the loan. Will this bring down my monthly mortgage payments?

Thanks.

sarah_elton

Assuming the interest rate stays the same, no it won't. Your monthly repayments will be the same, but the total you pay over the life of the loan will go up. So all in all, can't see any reason to increase the term!

It only lowers the repayments on a capital repayment mortgage.

The reason is that with interest only, you're paying, well, interest only. Your interest rate is per annum. If you're paying 5% interest per year on £100k, you pay £5000 per year for the length of the loan, whether that's £5000 per year for 20 years or 30 years.

With capital repayment, you're paying interest each month, but also the capital. If you pay off the £100k capital over 30 years instead of 20, you pay off a smaller piece each month.

There's a mortgage calculator here if you want to see what your repayments would be for different amounts/terms/rates, including interest only:

http://money.guardian.co.uk/calculator/form/0,,603156,00.html

concisethinker

Why would you want to extend the term ?

Heidi_Jane

Just thinking of ways to lower the monthly payment...

sarah_elton

Two methods:

1) Move to a mortgage deal with a lower interest rate

2) Re-mortgage and throw some money in to pay off some of the capital. Paying the interest on a £90k loan will be less than paying it on a £100k loan.

sarah_elton

Oh... 3) Sell up and move to a cheaper house

Possibly the least practical.

Heidi_Jane

Selling would be ideal but after 4 weeks and not a single viewing I was looking at ways to break even on the figures if I let it out. Got to move due to work. I have also lowered the price by £4000. Tough times for sellers I think.

sarah_elton

That's a crappy situation to be in. I guess you can't afford to pay the mortgage and rent where your new work is till it sells?

At the risk of your decor getting some abuse, you can post the Rightmove link here and people will suggest ways to improve the marketing (i.e. better angle photos, details missing off Rightmove etc), can be good to have a fresh perspective on it.