Interest-only mortgages - please come and see if you can answer my questions

[ceebeegeebies]

We are struggling atm (as is everyone) - have shedloads of debt and our outgoings are more pretty much the same as our income and we are just getting deeper and deeper into debt.

Am wondering about switching to an interest-only mortgage to give us more £££ each month and give us some breathing space.

Can you just switch or can your mortgage provider stop you? Can you do it temporarily and then switch back, say in 12 months?

Any advice would be gratefully received

Your mortgage provider can stop you if you aren't putting a repayment vehicle in place to repay the mortgage. You can just change back at any time.

I think if you haven't already you should take a structured look at your debt overall, try Debt Free Wannabe at Money Saving Expert, or Dealing With Debt at The Motley Fool. There are a number of techniques you can use to get your debt under control but you need to have a clear picture of where you can trim spending and avoid debt traps, and I think interest-only mortgages can be dangerously tempting. Don't get me wrong, I'm on one myself but because our capital is tied up in houses we will sell long before the term expires. I still don't like it, and i would be very cautious.

You'll have to pay a fee to switch from repayment to interest only and another fee to switch back. The bank should let you switch to interest only without too much hassle if the alternative is missing payments but they can't be seen to be promoting interest only mortgages at the moment.

Thanks - the website says it is our responsibility to make sure that we can repay the capital at the end of the mortgage period so would they still stop you? And does that not just make it an endowment mortgage??

If we have to set up an investment plan, it is not going to solve our problems but I read somewhere that this is a way of reducing your outgoings temporarily - am I wrong?

We did it for three years, and have just started making partial repayments. We plan to go back to full repaymeents once we are off the high fixed rate. Tbh we are in your situation; high income, huge debt, etc. I hated it; it made me feel sick at night and I felt we were just renting the house. If you have a plan - ie the money you save pays off debt over a year, do it. If its to cut costs, you run the risk of never getting back on to it.

notactuallyme did your mortgage provider need any assurances from you with regards repayments? How did you go about doing it?

Tbh, we just need a year's breathing space and then we stop paying nursery fees and my car loan ends so we should get back on track then.

Thanks for the links into debt plans - I have been burying my head in the sand and don't really want to face up to our problems but can't do that anymore

Have you considered a mortgage holiday, where u agree that no payments are made for say three months. you could then use that money to help with the remainder of this years payments. For example if your mortgage is 500 a month and you dont pay for three months that would be 1500 pounds saved to spread over the remaining 9, so 166 roughly to each month. it will only work if things are a bit tight and not if its a case of you cant pay at all? it might also avoid the fees of switching to interest only.

If you're really struggling, I'd suggest that you book an appointment with one of the free debt advisory services - CAB, CCCS, National Debtline - and see what they suggest. If you have other debts besides the mortgage, it is going to be worth reorganising and renegotiating so that they are cheaper. Things like credit cards and overdrafts, for example, tend to cost a lot more than a mortgage. Asking for a payment holiday from your mortgage lender (as suggested above) can be part of that reorganisation.

In the meantime, get all the statements and bills together. Work out exactly what you've got coming in each month and what budget you need for essential expenses, not including debts. That will leave you with the amount you have each month to put towards debts. Having that number will then enable you to better judge what to do next. But do seek expert advice.

They won't let you switch permanently but if you request a temporary int only concession for 6 or 12 months to assist with financial difficulties they should agree

They will let you switch permanently. They just put some guff on the file about repayment vehicles. We have interest only and took out investment ISAs to pay back the capital plus planned to use some commission from my sales job. In reality when DS was born we stopped the investments because we've been living off one salary. None of this has ever been verified and we've switched deals twice - most recently last month.

When I go back to full time work my salary will be used to make capital repayments because the repayments are weighted in the bank's favour in the first few years. We'll move/remortgage at some point so will take out a new mortgage product for another 25 years. It will work for us but our circumstances are not the same for everyone.

There's a big difference between being seen to caution against interest only mortgages and the reality of switching to interest only for existing customers. I doubt you'll have a problem. Just make sure you use the extra cash to pay off debts. Don't blow it on holidays or a new kitchen or similar.

We switched to interest only when I was on maternity leave and we really regret it. We have only just switched back 7 years later. Our mortgage is £170k if we had stayed on repayment our mortgage would now be just over £100k and we would be able to afford a much needed 3 bedroomed property. What we should have done is stayed on repayment and increased our mortgage to allow for consolidation of debts.

Thanks for all the advice - it is really useful

We have approx £100k equity in the house which is probably our only asset and I just need to find a way of unlocking that equity to pay off our debts. I am wondering if a remortgage would be the way to go?? We took out the mortgage when we were in our early 20's and then moved again 5 years later so we will have finished paying off our current mortgage by the time we are in our early 50's so, to get us out of the mess (which I totally accept is of our own doing), I am quite happy to pay for another 5 years or so.

Also, I did wonder about a mortgage holiday - we took one for a few months when I was on maternity leave 3 years ago so not sure if we would qualify for another one.

I guess I need to bite the bullet and make an appointment with the building society to discuss our options.

Depending on how much equity you have as some banks are now asking for 50% for interest only

Can you find a local IFA and go through the options with you on remortgage etc and see what options you have. Personally have done everything we can to get away from IO by effectively overpaying and converting more of our split mortgage into repayment and less and less IO portion. There are simple spreadsheets you can download to find out the total costs you pay over years and it can be shcoking how all that interest adds up! I think having a product that allows ability to make capital reapyments on an IO may be good so that if you have options in the future you can pay into it.

ceebeegeebies,

You have recognised the problem, which is a good start. I think you would be doing the right thing by speaking with the building society. If things really are so tight you are spending over your income every month then you probably also nees to speak with the CCCS:

www.cccs.co.uk/

I am also a member on Money Saving Expert and they have some great forums and calculators on there. They also have a Statement of Affairs (interactive tool) that can be posted in a 'Debt free wannabe' forum and people can help you that way.

As Cognito and others have pointed out there are also other great money saving websites that should also be able to help.

My family have recently got out of debt after ten years of struggling thanks to my husbands and my ex partners. It may take a while, but getting out of debt is very liberating!

Good luck x

A lot of the big banks will consider a permanent transfer to interest only with a fee for switching. Dependant on the size of your loan to the value of your property.

From what I understand the range to be from 50% to 75%. It's possible with the housing market being as it is they might insist on a revaluation, which again will incur a fee.

An option may be a temporary concession to interest only payments, to qualify you may need to provide income and expenditure to your provider.

I wouldn't feel any shame in ringing them and explaining the situation, they may put you in touch with a debt counselling service such as pay plan.