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.

…And I agree, your son shouldn’t need to be spending £50 a week on groceries, plenty of people feed a family on that. He needs to learn to budget, shop and cook sensibly, or earn some of his grocery / social costs himself.

I still can't fathom where your £2k is going and it's starting to stress me (a stranger) out that you are more focused on getting more debt than sorting out the hole in your pocket where your wages seems to be going

You are aware it needs to be paid back, right? Your post seems to be all about what you can spend the "extra" money you'll free up on on this lovely house you like too much to move from - but not much on what happens when this new IO mortgage ends.

I don’t understand your thought process.

Nor do I understand where your money is going - do you?

at least to the value of the work and would make the house more appealing when I do come to sell.

But if that isn’t for 10 years then it will likely be dated/need attention due to wear & tear, so I can’t see it adding the value you think buy the time you are prepared to sell.
I get it, I’m widowed, it’s tough enough on DC as it is, so I’m trying to stay in the family home as long as possible.
I won’t go further in to debt to do it though.

The interest rate on the car loan is 6.4% and I am only getting 3.5% on my saving so yes you are right.

I am going to phone in the morning and get a repayment figure. They say not to rely on the one online.

I have been caught up on the idea of needing access to cash in case of emergency.

I really appreciate your thoughts.

Okay, I am getting the impression that interest only = bad!

It comes up as an option when you look at mortgage comparison sites so that's what sent me off down that path.

I don’t think its a terrible idea given you have so much equity.

could you get a lodger? I think the house is far too big. How do you even know your son will return home after uni? Many don't.

I loved my old home - but I had to sell it & downside. It was the only option that made sense as I wasn't prepared to take on more debt, despite how lovely the area/friends/memories were.

Now, I love my new home & it gave me financial freedom which is ultimately priceless.

do you have anything you could rent out eg near a train station where park and ride is frequently full or a concert venue = rent out your driveway. A garage = rent it out to someone for storage (flats dont always allow owners to put up a shed or provide them with garages).

Sadly not, I am on a housing estate and a good way from town. The garage has been converted. Good thought though.

Pay off the car loan with your savings.
Get a lodger
Extend the mortgage term

It's not always a bad idea... but you have an incredible amount of disposable income as a single person after your car and house are paid that it's a bad idea for you to get into even more debt when you can't seem to contain your spending. You either don't know where it's going or just won't tell us... which is fine but you need to understand that more borrowing is not the answer. Less spending is the answer.

You don't need to leave your house and downsize now if you can curb your spending.

@BudgetBuster

I have spreadsheets but am fairly new to keeping track of every spend as I have only been doing it since the end of October. I am reviewing them now. My bills and council tax band are high due to the size/value of the house. It is fairly well insulated and I am already paying a bit less for gas and electric being on my own. Happy to share some numbers just need to get my head around them first!

there used to be a earn a tenner a day thread on here with all sorts of ideas from uni students tutoring kids to paid online questionnaires to renting out rooms from monday to friday.

lots of ideas. if you both did a couple of little extra things to earn an extra twenty quid a week each or somwthimg maybe you’d be able to stay put.

is your 0% credit card going to be paid off by the time the 0% is over, as itll hike right up if not. So i’d check that out and divide the total owed by remaining months before the rate vanished and ensure i was paying that amount.

martins money tips (money saving expert) is great.

adding value to a house is good buy you’d have to include the cost of the credit and see if it was a profit or not. credit can be expensive. i got flat rate and apr mixed up once. never again lol.

Don't do it. Do you have room to take in a lodger? Some just want weeknight lodgings and go home at weekends. Could you get a second job? Could your DS get a part time job? I'd dip into savings before going down the internet only route on my family home. I'm quite happy to be interest only on some of my btl houses but I'd never risk my family home.

Are you near a uni so could have a student as a lodger termtime only or what about hosting foreign students for cultural exchange? Moneysavingexpert has an audit - I saved money by getting water meter once dc were at uni. Council tax single person discount. Swapping utilities / phone. Use cashback sites / cards. Use a spending app. I think you would be able to get the spending down and still help your son.

Like someone has said perviously for interest only mortgages these days you need a 'repayment vehicle' ie large sum of savings/lump sum from pension/investment property.

It's too high risk for the banks these days so they are very strict with eligibility.

I do take on board that most people are saying interest only is risky but why is it risky?

I get that the market may change - prices could go up or down, the market could stagnate - but I what about if I plan to sell in 5 to10 years and likely closer to 5. I definitely wouldn't leave it until the last couple of years of my mortgage term that would be way to stressful.

How am I a more risky proposition to lenders if as a result of remortgaging I will have no other debt but the mortgage and more disposable income. I am overspending now but I would not be overspending then.

I would be able to live within my means albeit with a bigger mortgage but I am looking at a LTV of less than 20% in any scenario.

interest only you are not paying anything off the debt. you are renting from the bank. where does your monthly salary even go? Have you got a full written down budget?

Your mortgage is quite low so you won’t save much anyway going interest only. Personally I would downsize now. Id much rather do that than get a lodger.

Or check your other expenses/ spendies. It’s going somewhere and it isn’t clear where.

You are risky because you are trying to remortgage instead of just cutting back.

What do you need extra money for?

You say you are overspending now but want in the future... you absolutely will, but you'll be overspending even more because you'll have more.

You cannot be spending £2k a month on council tax, bills and groceries living alone. It doesn't add up.

A lender will worry about why you need to go interest only?

You can't manage your finances. Banks are not jumping at the chance to lend money to someone who needs it because they, by their own admission, spends more than they earn. You're a huge risk.

But if you borrow more it will cost you more, even if you're only paying the interest.

Quick fag packet calculation based on currently owing £60k and paying £500 a month repayment, at 4.5% gives a term of about 13 years.

Change that to £100k over the same term, same interest rate and your payments on interest only are still nearly £400 - so I'm confused where you think you're going to be £500 a month better off?

You're selling the house eventually to repay the equity, why not do it now and downsize.

I'm still questioning your other expenses as you still have £2k a month after mortgage, car loan and D's expenses. There are definitely savings to be made for someone living alone op. Your 'leftover' funds are still higher than my take-home and I have all my bills to pay from that.