Interest Only Mortgage

[milkshakeandchips5]

Hi!

We are due to remortgage in the next 6 months and looking at all options. We have a large mortgage (£580,000) that's already across 33 years so extending length isn't an option. We live in SE and this is a long term property. We bought with the intention of staying point as cost of moving and stamp duty we're too significant to "climb the ladder" so to speak. This was manageable and we stress tested at purchase to 6% (current rate is 1.42%). What we didn't account for was simultaneous increases in all other bills as well as my mum falling ill resulting in childcare increasing by £500 a month + a significant increase in petrol and travel to support her.

We could just about afford repayments at 6% but would need to tap into savings monthly to top up. Alternatively, I'm considering an interest only mortgage for 2/3 years whilst we get through what is probably the highest outgoings period of life. We would overpay/save towards equity monthly but interest only would give us some breathing room whilst rates settle (I personally believe they will settle at around 3%, not as low as before but not as high as now).

I'm confident we can repay the mortgage in the long term. My salary progression is good and I have a good bonus / company shares scheme.

Has anyone switched to an interest only mortgage? Is it crazy to do so for a period of time?

Thanks

I have a BTL that is interest only, if I need money I take more out if I don’t I overpay the mortgage. Currently I’m paying off more on that than I am on my house!

We went interest only when we last remortgaged, but for different reasons.

We could only use “sale of property” as the repayment vehicle, and only on 50% of the value of the house (so we have a small amount on repayment). We are saving the difference (plus more) into ISAs and pensions, so it isn’t that we can’t afford repayment, but boosting my pension is more important. We’re aiming to have saved enough in ISAs to pay off 1/3rd of the mortgage in 5 years’ time when we remortgage.

Worst case scenario, which is unlikely but not unforeseeable, we sell the house at the end of the term (22 years) and use the equity left to buy something smaller. Or when I’m 57 I use my pension tax free cash to pay off what’s left.

If you can get a lender to lend then it doesn’t seem like a stupid idea to me.

When we bought our house we went for interest only. We, however, were in our late 20s and both in stable careers with likely big jumps in salary over the next 10 years. We fixed for five years at something like 1.49%. We were just TTC and thought it would be the most expensive time in our lives with mat leave and childcare etc so best to reduce outgoings as much as possible. but you need to check you can actually get an interest only mortgage

BUT we 1. were putting down a 45% deposit and 2. were buying an easily sellable house (due to its proximity to an excellent school) 3. had a very low interest rate

Especially as interest rates have risen glad to be putting that extra money into a savings account at 2.25% rather than paying off the mortgage.

Once kids are in school/getting free hours we will move to a repayment mortgage.

Wow OP! I could have written this post myself. Our 1.42 % capital repayment mortgage rate is up in November and our outstanding balance is £575,000 meaning currently our mortgage is due to jump up by an additional £1000 per month. And like you been hit all angles with regards to price increases (my energy bill has gone from £200 to £700 per month but that’s another debate!)
We’re also going to go down the interest only mortgage to try and keep our monthly mortgage payment the same as it is now. Plan is to ride it out for 12 - 24 months and regroup when mortgage rates / inflation has come back down and then try and overpay when the would isn’t as crazy as it is now!

*world!

Oh hi @MumAmy85 nice to hear of someone else in the same boat. I didn't think it would be quite so tricky to navigate. We have no regrets, even with the higher interest rates the cost of 2x stamp duty's + moving in a short period of time would have been worse but we very much need to ride the wave for a little bit. Have you been able to find a IO offer? Our Broker had options for us but they were all pulled last week whilst the markets regroup.

I'm trying not to spend too much time on it! Who knows where we'll be in six months.

We went interest only back in 2009, shortly after the financial crash of '08. We had been on a tracker mortgage quite happily, had our daughter and then BAM it all fell apart.

IO saved us financially, but we found ourselves stuck in it and could never afford to get back to a repayment mortgage. Looking back now, I wish we had stayed repayment and coped somehow. We sold in 2021 and made a decent profit of around £100k, but imagine how much profit we would have had if we had continued paying!! Certainly it would have left us with a much smaller mortgage on this new place, to be navigating in these current turmultous times.

I think mortgage rates will settle at around 4%, and stay there for another decade with the occasional up and down movement. Never will come back to the low rates we did have.

I'm going to go philosophical on this one... 😂

If your family is a ship then you are in stormy waters. You have a lot of things going on and it's created strong headwinds. Your job now is purely to stay afloat. You are the captain of this ship. At the moment your job is to get out the other side. You're going to have to do make some hard choices, but make them with a resilient spirit and calm mind. By the sounds of it you have a pretty good ship to steer and a sensible captain.

Tighten your belts and strap in and remember this storm shall pass.

On a more personal notes. These are some of the decisions I've made on my ship

Reduced eating out / takeaways / nice coffees significantly
Going to reduce down to one car after the lease ends this Summer
Taken up gardening as a hobby so we aren't spending going out. 🙃 planting lots of fruit and veg!
Paid off some of the mortgage from savings to bring monthly outgoings down
Holidays? What are holidays? We are camping in the bank garden this Summer.

Our ends are just about meeting, but the goal is to keep the house and stay fed, whilst keeping our minds 😉