Changing to interest only mortgage - how

Krasnoludek

Hi

We want to change to an interest only mortgage and have been told we can do this by our lender, we dont intend to do this long term, perhaps 12 months or so, just to enable us to make a start with a DMP plan.

I have recieved the offer through the post this morning from the mortgage company advising us that we need to arrange a new form of repayment for the capital alongside the interest only to ensure its paid off, obviously we are trying to cut back at the moment, so if we were to do this there wouldnt be much point in trying to organise an interest only mortgage ! it asks for details of the other savings/endowment policy on the acceptance form. Its only a temporary measure, do they put this on all forms they send out ? Help I thought I had seen a light at the end of the tunnel now but it seems it has been switched off !

K xxxx

withabix

That's the credit crunch for you. The goalposts are moving with lenders as a result of this.

It's starting to go back to the situation where flexibility is only available for people who don't really need it!

pania

Good morning!

Switching to IO really is very easy. all that you need to do is to open up an ISA and provide the lener with the details of that. They do not check that you are paying into it just that it is there so you CAN pay into it.
Lenders did this to move away from their responsibility of an endowment. if you don't pay into it and thus can't afford to repay the lump sum at the end of the term then it is down to you, as opposed to having an endowment shortfall which is the lenders fault.
open an ISA on line and send them in the account number, that should be fine.
take care
xxx

Krasnoludek

Thank god for that - I was really beginning to panic then :j

Wont they check the balance though....is there a way of them doing this ???
Would it not appear on my credit file or can they ask for an annual balance or something ??

Thanks so much xx

K

pania

nope to be honest they're not interested. if you get 25 years down the line and haven't saved enough to pay the amount thendown to you in their eyes. there isn't a way they can check the balance unless if it with the same lender. They don't ask for balances they just prefer the risk being on the shoulders of us consumers rather than themselves.

xx

jmhgibson123

can i just ask is it worth doing intrest only does it save you much as on my mortgage statement most of what i pay is intrest i only pay about £1000 a year off my actual balance

pania

it depends on the amount of the mortgage and how many years it is over. if your mortgage is over a longer term say 35 or 40 years then you will only pay a little off the capital each year, if over a shorter term then that amount will be greater. you can generally save between £40 and £120 per month by switching to interest only but remember this should ONLY BE A SHORT TERM MEASURE OR IN EMERGENCIES ONLY! you will at sometime need to switch back to repayment if you're not saving to repay the mortgage and the longer you leave it the higher your future payments maybe.
Hope that helps
P
xxx

Krasnoludek

Hi again

Our mortgage is 105k over 21 years now, I will be paying approximately 160 less a month for six months, the BS agreed to do this for us without us doing an ISA or similar and no product charge which I thought was quite nice, this will help us out a lot.

We are both expecting pay rises this month so hopefully an extra 100 quid coming in our household per month more plus we are selling our 1.8 petrol guzzling VW Golf for a 1.2/1.4 petrol or smaller engine diesel, we realise things have to change and we welcome it, as long as we are making progress

K xx