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.

Well that would be nice but no he doesn't contribute. I am not getting in to all that in this thread. Our shared dog lives with ex but comes for sleepovers. He is still my dog and I want him to be insured. If he wasn't and there was a big vet bill muggins here would be paying it because I love my dog.

I will check out the link tomorrow as I am almost ready for bed :)

Many years ago (probably almost 20yrs) DH and I got into financial difficulties and were having issues repaying bills. Our mortgage provider agreed to move us over from a repayment to an interest only deal to reduce our payments. We should have switched back after a few years but never did as we were enjoying the low repayments. The problem with interest only mortgages is that you're only paying off the interest each month, not the main bulk of the mortgage, so it barely ever decreases. We were getting nervous because our deal was due to end in 2027 and the mortgage had remained at £220k. Our only way of repaying it would have been to sell our home. We were facing the prospect of moving from a 4 bed semi into goodness knows what to release our equity. It's a very risky situation to get in to.

Fate had other ideas for us though and DH was diagnosed with terminal cancer in 2022. When he died, the insurance policy taken as part of the mortgage deal paid off the mortgage 🤷🏼‍♀️.

oh gosh, i am so sorry.

EON. Can't recall which tarrif - whichever was cheapest when I fixed earlier this year.

I know it's a lot. It was over 200 until recently and as much as 260 during the energy crisis.

I definitely shopped around. The savings on a couple of comparison sites based on my past usage was less than £20 per month. It thought I may as well stick and try to get it down with EON by using less.

Good point about the heated throw. I do have one but had just got used to turning the thermostat up (when we were both home).

@SparklyGlitterballs I am so sorry for your loss.

Woah!

Gas and electric is obviously going to be expensive in a 4 bed house even with only you living there. That's more than mine on a 3 bed in winter with 3 of us at home. You could cut that to £100 a month over a year.

Council tax will be much cheaper on a 3 bed too, maybe £120 a month for 2 or 3 beds with single discount.

Hmmmm re dog expenses. Not essential to keep pets but that's way down the list to be prioritised, still £150 a month you could be saving

DS can deffo get a job.

Gym is going, good

WLI - £ 230 a month. You can't afford this.

Short breaks - £200 a month - that's £2400 a year - your credit card balance, paid off in 18 months

I agree with regular savings for car insurance, Xmas, gifts, some hair/beauty budget - yours is certainly lower down the list for chopping than other expenses.

You could save £500 a month straight away if you quit the WLI and downsized tomorrow. Pay off your cc in 18 months if you put off the short breaks for a bit.

Your expenses are currently greater than your income, and are unsustainable. You have some decisions to make op, but taking on another mortgage won't make things any easier long term. You could still downsize and D's would have a bedroom to himself.

Just on the interest only card. The 0% will be up in April when I was planning to switch if the house hadn't sold or I hadn't remortgaged. That was plan C. I have a good credit rating so should be no issue. If anything they keep telling me I need to use more credit to boost my score! If I do switch I will get rid of my current 0% card.

The house was meant to be on the market by now but I got cold feet and have been putting it off.

comparison sites do not give octopus tracker as an option. it is a hidden gem. but you do need to cut your consumption by an awful lot too. hopefully you use slow cooker/air fryer and never put on an oven. showers are cheaper than baths if quick. insulate if possible. but turn down the thermostat and do not use the heating unless necessary and only in the room you are in if possible. and any appliances like fridge/freezer run expensive when empty. freezer full of air costs more - fill gaps with cheap bread, or even towels. meal plan. slow cooker dump bags then cook a lot and freeze in portions. do not use tumble driers ever. invest in heated airer. light bulbs make sure energy saving - tbh i think they all are now cheap to run. exterior lights - switch off unless solar. service the boiler too.

I think this all sounds very sensible OP.

If you are dead set on downsizing in a few years, an interest only mortgage as you've suggested sounds the most sensible. Of course if interest rates go up then you run the risk of higher payments not having paid off more capital in the meantime.

100k mortgage isnt a massive amount compared to equity value.

Definitely do not cancel your life insurance and CI.

You've said you've had your fingers burned with a (dodgy) mortgage advisor. Many dont charge unless you take out a mortgage and there's some fantastic ones out there, I'd go and get some advice in the first instance.

Also worth clearing any debt with higher interest than mortgage first off.

It's always hard to move / downsize when you're happy where you are (but it's even harder to be financially vulnerable).

Just a thought: in the next 5-10 years you mentioned your plan would be to downsize to a house worth £300K - £350K - just bear in mind that if the property market keeps going up, you may only find very small 1-2 bed properties in that budget range, by then :(
Houses worth £350k today may be worth £450 in 5-10 years and you won't be able to afford that if you take another mortgage now.

There is no right or wrong answer OP, it's more about deciding what the biggest priorities are for you.

Regarding renovations - little upgrades can work wonders and be very affordable (such as, painting over kitchen cabinets, changing the door handles, putting peel-and-stick vinyl over the counter top, and even peel-and-stick tiles on the floor... you can transform the whole room for £150-£200.)

Wishing you all the best!

I really appreciate your input and will do some more calculations and check back tomorrow.

I am sorry but that makes zero financial sense. Borrowing more when you already struggle to make payments and swapping to interest only means at some point you will need to repay £100k. You would be leaving yourself very vulnerable should you get ill or lose your job? How do you intend to fund your retirement? You will need to sell to pay off the mortgage. Forget the LTV. Affordability is what banks look at. If the credit cards are zero percent keep chipping away at that. I would focus on living within your means and save for home improvements or use another zero percent card once current debt repaid.

I would personally pay the loan off, cut back on groceries and some of the fun spending (holidays, meals out) and throw money at your savings until you feel you have enough of a buffer to throw at the credit card. For me this would be around £5000 in savings but you may want more. Now you’ve freed up money to save and live off. Your mortgage isn’t large. I think you can keep paying this down and move when the time feels right. I wouldn’t take anything from your son. The student loan isn’t enough to live on. He needs parental contribution as well.

First thing I would do Monday morning is pay off the car loan from your savings. You still have £4k in savings then for emergencies.

Take the £195 and add it to the £50 you are putting off the credit card. It will be gone in less than a year. You can then start to rebuild.your savings again.

There is zero need to be heating a whole house everyday. 5 in my house, 2 adults at home all day working, 2 teens constantly on TV or PlayStation in the evenings and weekends. My electric (no gas here) bill for December (so included Christmas lights also) was £147! We get approx £300 oil for heating every 4 months so averaging same price as you but with 5 people!

Would you consider getting an erasmus student for your local secondary school? They pay about £180 a week which could really help you build back up your savings or pay your credit card, even just for a year.

The mortgage isn't your problem.

Paying for your ex dog.... that's a problem.
Constantly answering people's budgeting suggestions here with I'm not willing to cut that is the problem. You refuse to live within your means... so you need to increase your means.

Can your ex (assuming he is your sons Dad) not give him £100a month and that'll cut your contribution in half?

Also... tell your son get a job and stop making excuses for him or he'll end up in debt issues like you. He is old enough to do a few hours work at weekend at Uni... it will be good for him to understand the value of money.

yup exactly this. and move to a cheaper tracker tariff too. Time to face the music and be a financially literate adult. you have been offered so many solutions here to the problem and you are putting barriers up to each one. I don't understand why you need to stay in a 4 bed alone. Ridiculous expense and complete waste again.

Morning All

I don't think it's fair to say I am putting up barriers to all the solutions offered. I have said I will turn down radiators (already done this morning along with the thermostat) and use a heated throw and the gas fire in a bid to get the bills down. I will stop drying full loads in the tumble dryer (I currently do this maybe once a week). I will work on cutting the food bill, cut out the subscription products and look at paying off my loan. I have already cancelled a number of services. I won't be booking anymore holidays until at least 2027 and then not unless I have my shit together.

Credit card companies are not on your side, they are not your friend and not a financial advisor. They want you to spend more regardless of whether that is sensible for you.

Credit score is not really a thing in the same way in the UK as it is in the US so please don't take on more credit for the sake of that.

I'd recommend looking at the flowchart on the uk personal finance subreddit. It's a really good basic primer for financial literacy.

Are you paying for car and home insurances monthly? Or have you accounted for the costs monthly? Paying for insurances monthly isn't spreading the cost of the insurance over 12 months. It is taking out a loan for 12 months often at high interest rates. If you don't have the money to pay in full it's one of the times where a 0% credit card might be better idea

Are you savings in the best accounts, you should be able to do better than 3.5%. Cahoot offer a savings account at 5% up to £3k and the best savings accounts are at 4%. Last year it would have been possible to get 4.5%

Adjust the thermostats in all of the rooms based on use. We have a spare room for my in-laws. When they aren't visiting the door stays shut and the radiators on minimum. Similar for our box room which will be the nursery but whilst baby is still in our room it is only for clothes storage. What is the temperature on your boiler? We set the thermostat 1deg cooler than we typically like it. If we are busy in the house that usually fine, occasionally it's not so we turn it up for an hour or two.

Food - if it's coming to it's use by date cook it even if you don't eat it that day. It can be eaten the next day or be frozen.
If you often over buy don't write a shopping list write a what we have list and only buy things that accompany what you already have - ideal world need a bit of both.
We get the best use of food and reduce waste by looking at food shopping over the month. We have a stock the cupboard shop, a stock the fridge shop, an average shop and a eating what we already have shop with the aim of finishing the week with an empty fridge.

My car insurance was paid in full last time. Sometimes I do that, and sometimes I pay monthly. I take on board that monthly sometimes costs more. I can switch my ISA in April and will look to getting a better deal. I have turned 3 radiators off and a couple down in the rooms I use less often. I only use the main bathroom for showering so will try turning it up half an hour before I want to go in there.

I have just looked on EON and they suggest reducing my direct debit to £160 from £174 so I must have already cut down a fair bit since my son left. It wouldn't let me change it online though so I have messaged them. I reckon I can get it down further :)

I food shop online weekly and sometimes buy extra to get it up to the delivery charge. I have well stocked cupboards. With the extras like milk, top up shops, and online purchases it soon adds up and then I am over budget. I will try planning around what I have in and cut my online shopping to fortnightly. I can top up veg and other fresh stuff in between. If I buy bread, I will freeze half for the next week (I often throw bread away).

I think given your update that you need to give further thought to selling.

Free up more money to enjoy life. You have quite high outgoings on other things but you've said things like WLI are essential to your quality of life (I'm not saying you are wrong here, just that if you choose these priorities something else needs to give).

The mortgage isn't really what's killing you, it's all the other bills. It is well within the normal ratios of housing cost most people carry but because you have a small mortgage on a large property, your bills are disproportionately high in comparison.

You don't have to sell immediately but it is always better to try and sell when you don't really need to than to face the pressure of having to shift it.

There is scope in your budget to bring things in line and to stop you running up debt and you are definitely doing the right thing to address all of that.

I'd probably treat it as two phases. Stabilise for a couple of months (you probably don't have council tax in February and March) and then consider marketing it in the spring.

You can take your time in accepting the right offer/finding the right property.

If it doesn't sell then your finances will still be in a position where you can manage but I think I'd test the market while I still had that flexibility rather than waiting until it reaches a crunch point.

" I can switch my ISA in April and will look to getting a better deal."

Point of order: you can transfer your ISA any time you want, but make sure you use the proper transfer process to keep it inside the tax-free wrapper. Do NOT withdraw it.

Then in April you can sort a new ISA as well. You may be able to transfer your existing one into a new one (or vv), depending on the provider and product.

Here are a couple of things you could look at in your budget.
A new phone every 3 years when you could be on a £3 a month sim only deal?
your car loan- when you look for your next interest free credit card after this one expires in April, see which ones off the longest duration and (depending on if early repayment applies) transfer the car loan to the interest free card. Only do thins if you will 100% pay it off by the end of the 0% term. You might not be able to transfer the whole loan.

I’d get two lodgers in - women

You can also get paid to host international students - A friend mentioned this and I looked into it did five applications within half an hour and had so many callbacks. The only reason why I didn’t proceed with it is I had a friend move in.

Speak to a mortgage advisor or YBS direct thats the only way you will know.
You have a high LTV so i think youd be low risk .
Otherwise and you stay in your
Area (conpletely get what thats important) and get something a bit smaller a 3 bed semi for example would that be a better option,keep your 60k mortgage and release equity.
Although youd need to consider moving costs too .
Otherwise can you extend your mortgage term to lower payments?
Having DC at uni is expensive but relatively short term and hopefuly just for 3 years, how long does he have left?
Could you go for promotion at work, or if part time increase your hours?