Anyone ever changed to an INTEREST ONLY mortgage?

[shoobaloo]

DH and I agree that DS who it 18mths would greatly benefit from going to nursery two mornings a week. In order to finance this, we would probably have to change our mortgage to interest only for a couple of years. Has anyone ever done this? Was it scary - esp as you don't know what the interst rate will be when you go back to paying the mortgage off properly in two years time.

We've just taken out an interest-only mortgage, but this is different because we own another property which we'll be able to sell before the end of the mortgage term. This should pay back at least 75% of the capital.

I don't think I'd do it in your circs (although this is entirely up to you of course) and, to be honest, I have a ds only a couple of months older and I don't think he really would benefit from going to nursery for two mornings a week - again, just my view and not the question you are asking. Just wondering if there is a workable compromise that wouldn't mean moving to interest-only. A childminder maybe?

you have to take out life insurance though which just adds up the cost to the same as a repayment basically iirc

and there is the risk that the endowment wont be enough to repay the mortgage

but you can always change back to a repayment again when childcare costs are not an issue

hth

I think you'd be ill-advised to do this .. its really not a great idea

have you considered re-mortgaging and seeing if you can save money that way

can you not just take him to playgroups? honestly he doesn't need nursery at that age they don't actually 'play' with other kids but more alongside in general and he can socialise at the drop-in playgroups and groups

I am assuming here that one of you is a full-time parent

Interesting. DH owns his own business and the company projections suggest that in the next few years it could really take off and he's hoping that he'd be able to pay off a large chunk of the mortgage in five years - possibly all of it in fact. Would this have a bearing on how you'd view it tribot? Also we have another child on the way, so it would be a big help to me also to have DS in nursery two mornings a week

We did it when we had ds we had planned to do it for the year whilst I was planning to take maternity leave. Unfortunately because interest rates have gone up we are still on interest only nearly 3 years later. I wouldn't advise it.

"company projections suggest that in the next few years it could really take off " ..

nope makes no difference though great you have confidence .. anything can, and normally will, happen in business and personally I really wouldn't play around with my home

do you have any friends you can do reciprocal childcare arrangements with?

DH is a money man and when I suggested it the other day he said it adds years to the term of your mortgage and is a very silly thing to do - there that put me in my place!!

i'm so glad I posted this question! You all bring up points that I hadn't thought about. Both DH and I have always been against interest only for many reasons and saw it as a total last resort. But hearing these other points and experiences, I think we would be better off struggling on a repayment.

I think once you got used to the lower monthly payments it would be hard to switch back and IO is very risky and expensive in the longer term

nogoes I feel for you. must be very difficult.

We took out an interest only mortgage a couple of months ago with no intention of changing to repayment for years - if ever. We'll be paying off the capital with bonuses, savings etc. I don't think it's scary in a climate where the potential increase in the value of your house per year, is greater than the interest you're paying.

We do take the risk that there'll be a house price crash, but it's a risk I'm willing to take to skip some of rungs on the property ladder and get the house I want.

You could always switch to interest-only, yet try to put some money aside as well - sometimes it can be done, even when you think it can't. That way you're only committed to paying the interest, but in a couple of years, you may well have a chunk of capital to pay off when you go back to a repayment mortgage.

company projections suggest that in the next few years it could really take off " ..

Ah yes that old chestnut, we gave up a mortgage of £400 7 years ago, to move South, and are now mortgaged for repayments of £1,500 a month.

Thankfully we are happy in the South.

And the company .....??

Well at the first sign of trouble they pulled the plug ,(the market wobbled) three weeks after September 11th. MY DH was unemployed for 6 months.

So please do not do it.

Take the pain.

I agree with twelveyeargap. I wouldn't think of having any other kind of mortgage than an interest-only.

Houses always rise in price eventually even if you have to wait after a crash. And there is no reason to expect a crash at the moment. Inflation is under control and the circumstances leading to the crash a few years ago are simply not present at the moment. The market may level off for a while (I think this likely given the fact that prices have risen higher than inflation) but eventually they will rise again. If you plan to stay in your house a few years your outstanding mortgage will be relatively of much less value by the time you want to move.

The fact that your business projections are favourable just add weight to this.

actually I think there may well be a fairly severe re-adjustment coming to the housing market

I wouldn't advise interest only, but it sounds from your post of 0823 as though you may have a flexible mortgage - possibly an offset? If it is an offset, you could look into stoozing (stoozing.com)to reduce the interest payable on the mortgage. We did this and found it helped enormously - in fact we are now on a "repayment only" system - no interest at all!

I think it is naive to think house prices will keep rising at this ridiculous rate and IR's will stay low.Also banking on a business and its future success is a bit risky too.A repayment does feel safer when we have had a lunatic like gordon brown running the econmy as anything can happen

twiglett well said Have been having advice from a financial adviser for yrs as I have developed a few properties and this is the first time ever he has said he can see prices dropping.Up until now he was buy buy buy but not anymore

I'm not bothered TYG I know how much money I've made out of the property market in the last 10 years

ISn't an interest only mortgage a bit like paying rent? Only you could make money at the end when you sell your house if the market has gone up? Or am I being incred naive?

I have made a fair bit too but it is not never ending and I hope we do return to seeing a house as a home and not an investment.We have all been conned by this govt into seeing our homes as a money pot which will also serve as a retiremant fund.I think it is worrying

shoobaloo

If you go to hsbc you will see that they do what is called a 'homestart' mortgage where you go 2/3 years interest only but can fix a rate now - the mortgage then clicks onto repayment at the rate that you fix now...

does that make sense..

Sounds ideal for you imo

Smiling - yes it is a bit like rent, but you make the capital gain on the property which would go to the landlord if you were actually renting.

However, if you apply for an interest only mortgage, the lender will often want to know how you intend to repay the capital. For example, they may want to see evidence that you can afford to invest in other financial instruments. That way you may be able to invest money in a "repayment vehicle" which is making you money whilst also growing captial for the repayment. Thus, if you invest wisely, you may actually pay off your mortgage more quickly because you have the captial working for you. It's probably not for the faint hearted or very cautious investor.

Our bank pretty much couldn't have given a fck how we inteded to repay the capital. They just "advised" us to have a repayment vehicle in place. It makes no odds to them if we have to sell our house to repay the capital in 20 years time, as long as they get their interest between now and then.

BTW - This out this morning

U.K. Pound Drops; Policy Makers Voted 8-1 to Keep Rates on Hold
March 21 (Bloomberg) -- The pound fell against the dollar
and the euro after minutes of the latest Bank of England policy
makers meeting showed an 8-1 vote to keep the benchmark rate at
a five-year high this month.
The U.K. currency climbed the most in two months versus the
euro yesterday after a report showed consumer prices
unexpectedly quickened last month, staying above the Bank of
England's 2 percent target. The rate-setting panel, led by
Governor Mervyn King, said they remained concerned about
inflation in the longer term, according to minutes of the March
7-8 meeting released by the central bank in London today.
The news from the minutes was that those who had been looking for a hike backed off,'' said Adam Cole, senior currency strategist at RBC Capital Markets Ltd. in London. We're seeing
euro-sterling rally and this should keep the pound under
pressure in the short term.''
Against the euro, the U.K. currency traded at 67.97 pence
by 9:43 a.m. in London from 67.90 late yesterday. Against the
dollar the pound was at $1.9572, from $1.9614.
Policy makers were expected to vote 7-2 to keep the
benchmark interest rate at 5.25 percent on March 8, according to
the forecasts of 16 out of 22 economists in a Bloomberg News
survey. The minutes showed David Blanchflower supported a cut.
``The short-term outlook for inflation was now a little
lower than in the February Report,'' which outlined the bank's
economic forecasts, policy makers said in the minutes of the
meeting.