Interest Only Mortgage

[Scarlettpixie]

Has anyone got an interest only mortgage? Was it easy to arrange?

I live in a 4 bed house with a mortgage of around £500 per month. My son is at university, living away from home/home in the holidays/some weekends.

I have a car loan of £200 per month and about £3000 on credit cards (on 0%). I give my son £200 per month for groceries while at uni (less over the summer when he will be home and I will be buying more food).

I have literally no money left at the end of the month. It's tight. I have been spending my savings to top up when I need to make a purchase and now that has reduced to the lowest level I am comfortable with. What is left, I really don't want to touch as it is for emergencies. Basically, it would be enough to pay off my credit card and car loan leaving me with zero. It is my safety net.

I planned to downsize when my son started uni but I love living here and keep putting it off. The more I think about it, the more I wish I could stay until DS has finished uni and is set up in his own home. Obviously if he comes back here to live and work for a while, he will pay board which will help with the monthly expenses until he is ready to move out.

I am wondering about taking on an interest only mortgage of around £100K which will give me enough money to do some jobs around the house (new bathroom/kitchen) and pay off the existing mortgage/debts. I have priced this up and would be around £500 a month better off.

I earn £45k per year and am single. I see many lenders won't allow an interest only mortgage unless the annual household income is significantly higher, although on paper I appear to meet the criteria with 1 lender.

My house is currently worth £450K so within the next 5-10 years, my plan would be to downsize to a house worth £300K - £350K and pay off the mortgage in full. The work I plan to do should add value, at least to the value of the work and would make the house more appealing when I do come to sell.

Has anyone done similar? Can you suggest any lenders? Any thoughts welcome.

So you are not wanting to switch your current mortgage to interest only, but to take out a second mortgage for £100,000. How much equity do you have in the house?

I didn't think interest only mortgages existed anymore (only available for landlords). Have you seen any offers for interest only?

You will still pay a significant amount of interest on an interest-only mortgage op, how are you going to repay this if you're already struggling??

Your income after tax, £500 mortgage, £200 car finance and £200 for your ds is still more than my full take-home op.

Decent lenders don't like lending where there is no repayment 'vehicle' - that's always been the case. They want you to repay the equity as well as the interest, without the constant threat hanging over you that in X number of years you will need to sell your home to repay the loan.

Does ds get all the student finance he's eligible for? Is he working around his studies (if not why not)? What else are you paying for each month that you can cut back on rather than taking out extra finance?

sorry not answering your question but I'm interested to know what your £3000 credit card spends are on!

I doubt any lenders would lend to you on this basis. Also if you are stuggling to pay bills now it probably isn't a good idea to get into more debt through home improvements.

Have you looked into increasing the term on your current mortgage as this would lower repayments and might help you manage bills in the short term?

It would be better if your son got a little pt job , paid for his own groceries

I have an interest only mortgage (partly). Min salary requirement £75k with a healthy LTV, needs to be paid off by 70. You need to have an exit strategy (down sizing is a permitted strategy).

I would say £45k p/a would not meet the criteria.

What is your current equity in the house?

I wouldn't borrow another £100k to buy more 'stuff'-that's just more debt when you are already in debt.

I would work at paying back the existing stuff you owe and your child needs to get a job.

This is generalising a bit, but for your average retail lender, interest only mortgages are usually only offered to a small subset of customers, usually higher earners, and lenders will have smaller planned lending volumes for that type of mortgage.
Lenders are expected to have evidence that you have a credible repayment strategy in place for both the interest and capital repayment, and they aren't overly keen on "I'll downsize at the end of the term" as a repayment strategy, unless you have masses of equity in your home. They prefer savings, another property, investments, pension pot, that sort of thing.

@Scarlettpixie You are living beyond your means. The answer is not to take out a higher mortgage and do renovations.

If you have no money at the end of the month, you need to relook at your current finances and spending. Do you need a car that costs £200 a month? How have you gotten into £3k credit card debt (like is this groceries, bills or unnecessary spending).

I'm not sure what your current mortgage balance is, but your income isn't overly bad.

What age are you? What would your exit plan for an interest only mortgage be? If it's to downsize... I'd just do that now instead of digging a deeper hole.

I have priced this up and would be around £500 a month better off.

You wouldn't be any 'better off'! You'll be even more debt than you are now.

I would use your savings to pay off your credit card and car loan - then put some of what you were spending on these to build your savings back up again. You can keep your 0% credit card for any emergencies in the short term until your savings are built up again. There is no point having savings if you have debts to pay off.

The renovations - I've got the same considerations to make and I am prioritising what will help the house retain its value before selling. If it's cosmetic upgrades then it's a no.

Oh I missed that. You should definitely pay your car loan off. You are peeing away money on the interest for that when you don't need to. No point having savings if you are losing money every month on debt interest

I think you need to review all of your other spending first.

The mortgage, car loan and money to your son still leaves around 2k a month for other bills.

Can you account for all of that or is some of it disappearing on regular incidental spending?

Given your mortgage is very low already, it's not going to be a huge sum you are better off by on interest only.

How old are you? Agree with the suggestion to look at extending your term to the maximum if you really need to free up some money each month but do the same with all your other bills.

Insurance, sky, breakdown cover all rocket up if you don't change or review them regularly and it's easy to find another £200 a month going out of your account.

Edited to say is there a typo in your OP because it says both your mortgage is £500 and that you'd be £500 better off.

So its just you in a 4 bed house? You are massively over-housed. You're romanticising the house.

Imagine instead if you moved to a 2/3 bed, had a paid off mortgage. Suddenly that £500 a month mortgage could go to your debts and clear them in a matter of months. Then you're mortgage and debt free. You're no longer stressed about having nothing left. You can save that money towards retirement, house deposit for your son, a holiday with him. Doing things and making memories far far far more valuable than your son having the option to live with you in a 4 bed house neither of you need and could better serve another family.

45K is £2993 per month

£500 mortgage
£200 son
£200 car

You should have 2K for everything else ?

Thanks all.

My current mortgage is 60k. I cannot switch that to interest only as my current lender won't lend on that basis.

I could take out an interest only for the same 60k, or borrow 70k and pay off my debts or 80-100k and do home improvements. That is of course if someone will lend.

My house has been valued at £450k so even borrowing £100k The LTV is low. There is £350k equity.

My car is 7 years old. I have 33 months left on my loan. Just under £6k to pay.

My credit card is mostly Mounjaro and some concert tickets. I ran it up on the basis that I would be downsizing this year. It's on 0%. I don't want to know what people think about WLIs. I have no regrets. It's £2600 actually as I have been chipping away at it.

I could downsize now and that was the plan but I wanted to see if there was some way I could afford to stay a few more years. I am not worried about owing £100k on a £450k house.

My son doesn't currently work. I support that and want him to concentrate on his course. He is in year 1 and finding it a big step up from college. They also change their timetable every few weeks which does limit what he can take on. I give him nothing extra. His loan covers his rent and all others spends.

When looking at costs, if I move now it will be to a bigger 3 bed as need space for my son and I work from home so need a room as my office. That means I am likely to move again closer to retirement. I am 53. If I move now, I am looking at 10 years in my next house. If I wait 10 years, it will likely mean moving once instead of twice.

In terms of finding a potential lender the only one I have found is YBS. It says they accept interest with a repayment strategy being the sale of the mortgaged property. They have LTV and equity criteria which I meet. They don't mention a minimum income.

Everything about your post points to you not being very financially aware and making decisions based in emotion rather than cool headed good sense. Your monthly income from your job should be just under £3k (not including pension contributions) Do you know where this goes every month? Have you tracked your spending? Do you work to a budget no matter how vague it is? People here can help if you want advice on any of this.

We had an interest only mortgage but it was based on DP being a high earner and the fact he had another property he could sell to settle the balance. The bank specifically asked how we intended to pay off the balance. I don’t think in your circumstances you’d get one (or that it’s a good idea) but I guess there’s no harm asking?

Yes and you are right. I have been here 16 years. When we came I was married and my mum lived with us hence the size. My son has grown up here. My friends are close. I feel safe walking the dog at night. I can't really afford what I want in this area without a mortgage. I could move out of area, be mortgage and debt free but...

The reality is proving harder than I thought and I am procrastinating. I love my house 😢

Admittedly I have been spending more than I earn and I am working on that.

I am just struggling to see the risks to either me or a lender in what I am suggesting.

If my mortgage was interest free I could live comfortably within my means. I am probably being unrealistic increasing the sum but on interest free the payments would be manageable.

Im really confused
Your CC is 3K and yet you want to borrow 100K

What do you mean?

My current mortgage is £60k.
My credit card is £2600 (sorry I said 3k)
My loan is £6k
I have £10k in savings.

I could pay off the credit card tomorrow and still have £7k in the bank.

I have always felt I needed some accessible cash as a safety net. I am now wondering if i'd be better paying off the loan as someone suggested as the interest will be higher than I am getting on the ISA.

@Scarlettpixie If your house is worth £450k and your mortgage is £60k, can you not downsize from a 4 bed to a 2-3 bed in your area for £390k? It sounds very doable.

You can't afford another £100k mortgage if you are spending more than you earn. You don't have to down size to a 2bed flat in a rough area but how much less is a 3 bed house in your area?