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.

Probably yes but that isn't taking into account moving costs and stamp duty and is assuming nothing at all needs doing to the new house.

I will look at the figures again though.

@Frozenbanana1

Forget I mentioned 100k.

What if I just remortgage the 60k I currently owe but interest only halving my monthly payments, then pay off my loan using my savings thus removing that monthly expense?

I would suggest 3 things:

1 - if you are downsizing in a few years only spend money on home improvements if they increase the value of the house by at least the amount spent, or there is a SIGNIFICANT impact on your standard of living (e.g. replacing a window because it is bitterly cold and you can’t use the living room)

2 - rather than going interest free, increase your term to the maximum allowed. This might have almost the same benefit to you as interest only, but you’ll be a better risk for the bank. In fact, you might find the net impact on monthly payment to be better, as interest rates on repayment are usually less than for interest only.

3 - if you are successful with 2, pay off your car loan with your savings. Then use what you currently pay to the loan to rebuild your savings.

ETA if you are paying £500 pm on £65k your current term is presumably about 15 years. If you increase term to 25 years repayment will be approx £360 pm. Interest free would be approx £244 pm.

If you are sinking into further debt while you have a £60k mortgage, you need to curtail your spending.

Or better OP, can you take an evening job? That would reduce your spending because you'd be at work, and the extra income would allow you to pay off your credit card and get a grip on your finances.

Just to clarify. The 100k was to include what I currently owe not as well as. Gosh that would be mad!

(Obviously I meant interest only 😁If you can get interest free mortgage definitely go for it!)

Are you saying a 4th bedroom isnt such a premium in your area you can't get a 2/3 bed for £390K?

Yes moving will incur costs but when your mortgage is £500 a month, within a year you've saved £6K. A few years (say 5) like you're thinking that's £30K. Moving will cost less in the long run with the savings.

You could get a small 3 bed - your room, spare room for DS/guests and a box room for your office. Or if 2 big bedrooms your DS can sleep on a sofa bed in your office when he comes home.

You just need to downsize, you’re living in a house that you can’t afford unless you drastically change something else about your lifestyle. Have I read this right that you have nearly 3 years left to pay off on a car that’s 7 years old?? You don’t need a 4bed house, and you could probably get away with 2 if you had space for a desk elsewhere in the house.

Don’t do it! Getting into more debt is never good.

If it was me I would stay in your current house for now but focus on cutting your spending. Your mortgage is very low.

Yes savings, pay off what you owe and immediately put the monthly repayments back into savings.

@Scarlettpixie I think you are missing the point here massively. You have a spending problem. You earn close to £3k per month... spend £2k on your mortgage, car, son. Where is the other £2k gone as a single person?

You absolutely should not be thinking of drawing down more debt (and I honestly have no clue who would give you that money given your current spending profile and age) to stay in your current house.

I don't mean to sound rude but it scares me that this is your thought process. Realistically given what you earn you should be able to knock the credit card out by end of summer. £6k left on a 7yr old car is alot unless it's a really expensive car. What interest rate is it at? You could a) pay it off and then just focus on building up a smaller emergency fund in the short term, pay off the credit card and then build up better savings. That way you could easily have £5k saved back up by Feb or March next year.

B) Look at refinancing your car loan at a lower rate and pay off the credit card from savings (would still leave you with £4k savings to stop you running up the credit card).

The answer here is absolutely not draw down more debt. You will end up in a cycle of debt and you will never be able to enjoy retirement.

I would be getting on Rightmove and looking at properties in the £325-£385k bracket. You need 2+ bedrooms and somewhere to work, ideally a forever home. If you can find that your whole financial situation is sorted.

Speak to a mortgage advisor (independent) not Mumsnet.

Or get a lodger.

I don't think your son needs £200 a month for groceries. That's an extremely generous budget for a student. Give him 40 quid less and throw that towards your own debts. He'll be absolutely fine.

I have seen some 3 beds in my area for around the £330K - £360K mark which could work, but the ones with good sized sized rooms tend to go fast or need work. I am currently detached and have a lot of space. I know I have been spoiled. I still want my son to have his double room but you are right I only need a small room for my office although I would like to be able to shut myself away to work when he is home (so not just a corner in the kitchen or lounge). However I realise my son may never come home to live full time. This is partly why waiting to move even if just another 3-4 years until he has finished uni seemed like a good idea.

Typo and I can't seem to edit... you spend £1k on mortgage, car, sons groceries.

If you get an IO mortgage (and you really really shouldn't, by the sounds of things it would be grossly irresponsible lending) and your plan is to downsize, how do you know your emotions won't get the better of you again next time and then you'll be in the shit. What if the market stalls when you need to sell and you're repossesed? I used to be a debt advisor and the one take away I have from that time is my opinion that IO mortgages are literally the work of the devil for 95 percent of debtors.

I have no faith in mortgage advisors.

I bought this house just after the the financial crash. The lender I had planned to go with moved the goal posts regarding who they would lend to and my mortgage advisor told me there was no way I would get a mortgate in the current climate.

After I got over the initial panic, I called up two of the main banks and got mortgage offers straight away.

As a PP said, the difference between an extended term and interest only is small.

I cannot fathom why you'd want to create a cliff edge situation on interest only for such a small amount when on paper you should be able to manage.

What else adds up to 2k a month in your spending?

Extending the term will be easier than trying to secure interest only and you could overpay once your son has finished uni to bring it down again.

But personally I'd be trying to reduce other outgoings to find a couple of hundred pounds per month before taking such drastic action.

Or if it's the case that your bills on such a large house are simply too high, you need to move.

@Scarlettpixie There’s no guarantee even after uni that at some point he won’t want to move home. I’d stick with 2.5 bedrooms and look now. You could sink an awful lot of money on waiting and still be in the same position when he finishes uni, just a lot poorer.

I can’t comment about mortgages, but I’d keep the mortgage you do have, and look at getting a lodger (assuming you have a spare room and you stay put). Use money from renting room to throw at credit card and car payments, then use it to put into savings…

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

So pay off the credit card and a decent chunk towards the car loan. You'll still have plenty in the bank for emergencies.

Luckily no lender will give you an interest only mortgage, so it is all moot.

If the car loan is increasing with interest and the credit card debt is on 0% interest if you're paying anything off pay off the car loan then start funelling the £200 a month into the credit card debt and it will be paid off in about a year.

What is the interest rate on your car loan? I imagine it’s more than your £10k savings pot is earning, so pay that off first as the credit card is 0%. How is left on the 0% deal?