Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • holyzombiejesus
    • By holyzombiejesus 12th Jul 18, 8:19 PM
    • 11Posts
    • 0Thanks
    holyzombiejesus
    Interest only mortgages or other short term ways of reducing payments
    • #1
    • 12th Jul 18, 8:19 PM
    Interest only mortgages or other short term ways of reducing payments 12th Jul 18 at 8:19 PM
    Hi,

    OK, first of all, I'm pretty much financially illiterate so please bear with me if much of what I say doesn't make sense or sounds stupid.

    So... my wife and I have a 2 year fixed term mortgage with Nat West. At the last re-mortgage, we were loaned 106k (house is worth about 125k; we've only had it for nearly 4 years) and have to repay 143k (I think) at 3.8% over 17 years. I am 48 this year and my wife is 35. We've just had a baby (well, 18 months ago) and my wife tried to continue working full-time but it wasn't working so has now gone down to 3 days a week. This has left us with a shortfall of about 500 per month. Her family very kindly gifted us 10k and we have about 3k savings. So, as it stands, we can keep on as we are for about 2 more years. Our current mortgage 'expires' or whatever they do when the fixed term is up this autumn and then we go and see the mortgage advisor that came free with the house(!)

    My issue is that even if my wife resumes full-time work in 2 years, we're using up all of our savings. I get quite anxious about things like that and hate the feeling that our safety net is slowly getting taken away. I emailed our MA today to ask if he thought we could get one of those mortgages where you just pay the interest for the next two years but he said no dice. Just forgetting things like cutting back and other ways of reducing outgoings, can people here think of any other options that may be open to us? Thanks in advance.
Page 1
    • sal_III
    • By sal_III 12th Jul 18, 8:57 PM
    • 644 Posts
    • 658 Thanks
    sal_III
    • #2
    • 12th Jul 18, 8:57 PM
    • #2
    • 12th Jul 18, 8:57 PM
    3.8% for 2 year fix is quite steep, even at 80ish LTV. I'm not sure this is the best deal for you.

    If you go for interest only mortgage the Lender will want to know what are your plans to repay the balance at the end of the term.
    • holyzombiejesus
    • By holyzombiejesus 12th Jul 18, 9:01 PM
    • 11 Posts
    • 0 Thanks
    holyzombiejesus
    • #3
    • 12th Jul 18, 9:01 PM
    • #3
    • 12th Jul 18, 9:01 PM
    Well I'll be getting a new deal in October/ November so will hopefully get something a little better then.
    As regards the lender wanting to know how I will repay the full balance, I'd presumably do that by remortgaging again? Or is that not right?
    (Thanks for your response, BTW)
    • holyzombiejesus
    • By holyzombiejesus 12th Jul 18, 9:03 PM
    • 11 Posts
    • 0 Thanks
    holyzombiejesus
    • #4
    • 12th Jul 18, 9:03 PM
    • #4
    • 12th Jul 18, 9:03 PM
    Also, do repayments get substantially smaller if borrowing below 100k?
    • sal_III
    • By sal_III 12th Jul 18, 9:19 PM
    • 644 Posts
    • 658 Thanks
    sal_III
    • #5
    • 12th Jul 18, 9:19 PM
    • #5
    • 12th Jul 18, 9:19 PM
    Considering your age, most lenders don't like mortgages that will take you past 65 - hence I suspect your current 17 years left at 48. If you go on interest only for say 2 years, and remortgage to repayment again it will give you 15 years to repay the same balance. So from the Lender's perspective, if you can't afford it now, how are you going to afford the even higher monthly payment then? Not to mention that once you go on interest only you don't have to remortgage meaning that the Lender is unlikely to accept "remortgage" as repayment plan. Your MA was most likely correct that this is not an option for you.

    The rate is mainly based on LTV (loan to value) not the total amount borrowed and your access to a decent Lender based on your credit report.

    I don't know your exact circumstances but unless your credit rating is poor and you have other debt 3.8% 2 year fix is way to high and you might have your MA to blame for this, try approaching a different MA, that might be able to get you a better deal.
    • Thrugelmir
    • By Thrugelmir 12th Jul 18, 9:29 PM
    • 59,819 Posts
    • 53,178 Thanks
    Thrugelmir
    • #6
    • 12th Jul 18, 9:29 PM
    • #6
    • 12th Jul 18, 9:29 PM
    We've just had a baby (well, 18 months ago) and my wife tried to continue working full-time but it wasn't working so has now gone down to 3 days a week. This has left us with a shortfall of about 500 per month.
    Originally posted by holyzombiejesus
    Then you may need to rethink your long term plans. Downsizing to a cheaper property for example. As each month passes repaying the debt owed isn't going to get any easier. With interest rates currently very low, the odds are somewhat stacked against you.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • holyzombiejesus
    • By holyzombiejesus 12th Jul 18, 9:53 PM
    • 11 Posts
    • 0 Thanks
    holyzombiejesus
    • #7
    • 12th Jul 18, 9:53 PM
    • #7
    • 12th Jul 18, 9:53 PM
    Considering your age, most lenders don't like mortgages that will take you past 65 - hence I suspect your current 17 years left at 48. If you go on interest only for say 2 years, and remortgage to repayment again it will give you 15 years to repay the same balance. So from the Lender's perspective, if you can't afford it now, how are you going to afford the even higher monthly payment then? Not to mention that once you go on interest only you don't have to remortgage meaning that the Lender is unlikely to accept "remortgage" as repayment plan. Your MA was most likely correct that this is not an option for you.

    The rate is mainly based on LTV (loan to value) not the total amount borrowed and your access to a decent Lender based on your credit report.

    I don't know your exact circumstances but unless your credit rating is poor and you have other debt 3.8% 2 year fix is way to high and you might have your MA to blame for this, try approaching a different MA, that might be able to get you a better deal.
    Originally posted by sal_III
    Thanks again. My credit rating was really good, as was my wife's. I wonder if the fact that we added a small amount (to replace the roof) on to the mortgage limited our choice? It's a bit concerning if we've not been advised well.
    So our best option for not slowly handing over our savings would be to just hope the MA (or another MA) can get us a better rate? I was wondering if it would make more sense to pay off a small part of the mortgage to take it under a particular amount and then save on interest payments (if that makes sense)?
    • holyzombiejesus
    • By holyzombiejesus 12th Jul 18, 9:56 PM
    • 11 Posts
    • 0 Thanks
    holyzombiejesus
    • #8
    • 12th Jul 18, 9:56 PM
    • #8
    • 12th Jul 18, 9:56 PM
    Then you may need to rethink your long term plans. Downsizing to a cheaper property for example. As each month passes repaying the debt owed isn't going to get any easier. With interest rates currently very low, the odds are somewhat stacked against you.
    Originally posted by Thrugelmir
    I get what you mean but as soon as my wife returns to full-time hours, we'll be fine (financially). We also get the 30 hrs free childcare in less than a couple of years which will help immensely. It's just this next 24 months and our dwindling savings (that can fully cover the aforementioned time period) that worries me.
    • GoingOn30
    • By GoingOn30 13th Jul 18, 9:15 AM
    • 101 Posts
    • 70 Thanks
    GoingOn30
    • #9
    • 13th Jul 18, 9:15 AM
    • #9
    • 13th Jul 18, 9:15 AM
    You can't really bet on getting the 30hrs free childcare in 2 years, there are no guarantees with what this government will cut next, especially with Brexit round the corner.
    As a family you need to be looking at how you can cut your outgoings asap.
    • sal_III
    • By sal_III 13th Jul 18, 9:59 AM
    • 644 Posts
    • 658 Thanks
    sal_III
    I get what you mean but as soon as my wife returns to full-time hours, we'll be fine (financially). We also get the 30 hrs free childcare in less than a couple of years which will help immensely. It's just this next 24 months and our dwindling savings (that can fully cover the aforementioned time period) that worries me.
    Originally posted by holyzombiejesus
    I'm afraid you don't really know how the 30 hours free childcare works. Depending on where you live and the cost of childcare it might only cover 1/2 (or even less) of the cost for full time nursery. Even with the best case scenario 30 hours are little over 3 days so you will have to pay for the rest or one of you won't be able to work full time. I suggest you ask around and check the waiting lists, some areas like London you have to sign up 6-12m in advance to get a spot in the nursery.

    Then it's time for school, depending on how long your commute is the breakfast and afternoon clubs might or might not be sufficient to allow for full time job. In some schools the places in these are limited even if you get a spot it costs money. If you miss out on them means that you will have to drop off at 8:30-45 and pickup ad 15:00ish can you do that on your full time job?

    Even then kids get sick all the time, does your full time job(s) allow flexibility around that?

    It's time to take long hard and realistic view of your finances and make a decision whether you will be able to keep up with the mortgage repayments in the long run? It might be time to cut your losses and downsize, change area, before you dig yourself in even bigger hole.
    • Pixie5740
    • By Pixie5740 13th Jul 18, 10:18 AM
    • 12,937 Posts
    • 18,598 Thanks
    Pixie5740
    What are savings for if not a rainy day? Sometimes you just need to put the umbrella up.

    Why have you discounted cutting back on other areas? Perhaps a visit to the Debt Free Wannabe board might help free up some money in your household budget.
    • Niv
    • By Niv 13th Jul 18, 10:37 AM
    • 1,663 Posts
    • 1,444 Thanks
    Niv
    As Pixie suggests get over to the debt free wannabe board - and post up a SOA.


    I would also look at extending the mortgage term. I am with Nationwide and they accepted me for a mortgage that ends when i am 1 year into state retirement. This works to reduce the monthly while still having the option to overpay if you have it. So I have a 30 year mortgage but overpay it to a level that means if i continue it will be paid over 20 years (about 18 now woop!).
    YNWA

    Target: Mortgage free by 58.
    • Niv
    • By Niv 13th Jul 18, 10:38 AM
    • 1,663 Posts
    • 1,444 Thanks
    Niv
    Forgot to add. Also look into interest rate breaks at different LTV which would also help potentially as you do have some cash in the bank.
    YNWA

    Target: Mortgage free by 58.
    • comeandgo
    • By comeandgo 13th Jul 18, 10:42 AM
    • 2,177 Posts
    • 2,961 Thanks
    comeandgo
    We are with nationwide and our mortgage runs until my husband is 75.
    • holyzombiejesus
    • By holyzombiejesus 13th Jul 18, 7:52 PM
    • 11 Posts
    • 0 Thanks
    holyzombiejesus
    I'm afraid you don't really know how the 30 hours free childcare works. Depending on where you live and the cost of childcare it might only cover 1/2 (or even less) of the cost for full time nursery. Even with the best case scenario 30 hours are little over 3 days so you will have to pay for the rest or one of you won't be able to work full time. I suggest you ask around and check the waiting lists, some areas like London you have to sign up 6-12m in advance to get a spot in the nursery.

    Then it's time for school, depending on how long your commute is the breakfast and afternoon clubs might or might not be sufficient to allow for full time job. In some schools the places in these are limited even if you get a spot it costs money. If you miss out on them means that you will have to drop off at 8:30-45 and pickup ad 15:00ish can you do that on your full time job?

    Even then kids get sick all the time, does your full time job(s) allow flexibility around that?

    It's time to take long hard and realistic view of your finances and make a decision whether you will be able to keep up with the mortgage repayments in the long run? It might be time to cut your losses and downsize, change area, before you dig yourself in even bigger hole.
    Originally posted by sal_III
    Whilst the free hours will/ might be a help, we can cover full time nursery fine (and have been doing so with money to spare for the last 12 months). School pick-ups, sick days etc are also ok as I can WFH and have flexi days. Long term isn't a problem. The issue really is just these next 2 years whilst my wife is off 2 days a week with the little one.
    • holyzombiejesus
    • By holyzombiejesus 13th Jul 18, 7:54 PM
    • 11 Posts
    • 0 Thanks
    holyzombiejesus
    I would also look at extending the mortgage term.
    Originally posted by Niv
    That's definitely something we'll consider. Thanks.
    • holyzombiejesus
    • By holyzombiejesus 13th Jul 18, 7:59 PM
    • 11 Posts
    • 0 Thanks
    holyzombiejesus
    Why have you discounted cutting back on other areas?
    Originally posted by Pixie5740
    Partly because we don't have very lavish lifestyles (no car, expensive clothes, Sky, iphones etc) and the small treats we do allow ourselves (Netflix, the occasional new LP etc) I'm not prepared to give up when it's not essential to do so.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

2,160Posts Today

7,751Users online

Martin's Twitter