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Original poster

interest only mortgages would I be mad?

25 replies

bumposaurus · 08/02/2008 20:24

We are currently living in SW London in a 3 bed house with a fairly hefty mortgage and 3 children. We desparately need more space and are looking to find it. For what we are currently paying on repayment, we xcould move out and have a houae with enogh space and still accessible for my work but mortgage would need to be interest only. Idoes anyone else have interest only and is it a good idea?

OP posts:

NorthernLurker · 08/02/2008 20:27

It's alrighht as long as you don't mind selling you house to pay it back at the end - whatever the market or your circs. I wouldn't personally - not as a long term measure - it's alright to get you out of a sticky short term situation.
Things to do instead - Loft conversion? Cellar? Summerhouse in the garden?

CarGirl · 08/02/2008 20:27

Only if you accept that you would probably have to sell the house and move somewhere much smaller at the end in order to fund repaying the capital. Are your joint incomes likely to go up signigicantly in 5-10 years? I live in a 3 bed terrace with 4 children and it's okay??? Not great but since we've been ruthless with not hoarding stuff it's much better

Original poster

bumposaurus · 08/02/2008 20:29

The problem is we are terraced wuth a 30 ft garden and in a conservation area so ecxtension,basements etc. not really an option. It would be short term, but the idea does bother me...

OP posts:

Bluebutterfly · 08/02/2008 20:29

We did it, but we knew it was short term, because we wanted to remortgage to do up our house for sale, and then sell it because we were moving abroad, so it was the best financial solution for the stop-gap, but it is probably not the best idea over the longer term as NL has stated.

CarGirl · 08/02/2008 20:31

Me and DH sleep in the 2nd bedroom and then 2 or 3 share the main bedroom it worked much better for us. Our small downstairs is open plan which makes it feel bigger. Our garden is tiny - er 15 feet at a guess but the dds have a playhouse?

Have you seriously looked at decreasing the amount of clothes/toys/tatt that you have it does make a difference.

allgonebellyup · 08/02/2008 20:31

is a 30ft garden big or small? doesnt sound too small to me??

Original poster

bumposaurus · 08/02/2008 20:35

It seems pretyy small with three boys who wnnt to play football in it. We have been having massive clear outs which has really helped nad maybe AIBU but I would love a tiny bit more space for each of us...sounds like intertest only is the last resort

OP posts:

CarGirl · 08/02/2008 20:37

yes I have dd's and as they get older our garden is small for them!!!! Could you make a playroom (ie non-habital therefore not requiring building permission potetntially) in your loft, this is the route we are going but we do not live in a conservation area and have somewhere to put the stairs without losing usable space of a bedroom.

With the market the way it is I would see about over paying your mortgage/saving really hard with the thought that in even 3 years you may be able to move to a larger version of what you have?

PotPourri · 08/02/2008 20:49

If you can arrange to make repayments interest only deals usually have smallprint 10% no penalty repayments per year. So you can effectively clear some fo hte mortgage that way. However, you need to be ruthless in saving hte money - like a bill - to pay that 10% off. If you really won't be able to save up cash to pay off hte capital amount, then as others have said, you need to be happy to sell the house and downsize later - so effectively it was like paying rent - but with the responsibility sitting iwth you for a broken boiler/roof etc.

I can't recommend decluttering enough. Seriously. And if you don't already have bunkbeds etc to fit the kids in with lots of floor space etc, do that - check out freecycle for bunk beds - they often come up on my one...

policywonk · 08/02/2008 20:53

If you get interest-only, any reputable financial adviser would also expect you to take out an insurance policy to pay off the capital sum at the end of the mortgage - effectively an endowment, although no-one calls them that any more! I don't know whether a building society would be happy about giving you an interest-only mortgage unless you could show that you also had the insurance policy in place.

Original poster

bumposaurus · 08/02/2008 20:54

Thanks for the great tips, I have tried most of them and they have helped ...I have the 2 older boys in bunk beds and the littlie in the 2nd room. We are entirely open plans downstairs and kids stuff and ours is intermingled (althogh decluttered)

I am an only child so whould hope at some pont tp get some money tp pay off a chunk of mortgage...we just need the space now...

OP posts:

allgonebellyup · 08/02/2008 20:57

i have an interest only mortgage, it was self cert and we had nobody telling us we had to have insurance in place.

i am hoping to work full time in the next 2yrs so thats how i plan to start paying it off..

satine · 08/02/2008 20:58

My mum and dad bought a house in 1982 for £30,000. At the time, it was an amazing amount of money, and they really struggled to pay the mortgage - but in 2007, when the mortgage ended, they could practically put it on a credit card.

So personally I wouldn't worry too much, go for interest only in the short term.

CarGirl · 08/02/2008 21:33

My parents bought their house for about £2k in 1968!

guggie · 08/02/2008 21:40

we have had an interest only mortgage for 3 years whilst dp built up his new business. Now things are picking up will revert back to repayment.

fine in the short term imo. plus we didnt have to have any insurances in place.

lalalonglegs · 09/02/2008 09:30

It's a short-term measure only, especially as prices are falling at the moment. It would be mad to rely on rising market helping you build up equity in place or, indeed, an inheritance - care home fees and/or golden-oldie high living could see that dream crumble.

noddyholder · 09/02/2008 09:34

Good iea in an emergency otherwise you are literally renting from the bank unless you know you can repay later.

chocolateteapot · 09/02/2008 09:36

We have been doing it for a few years whilst we were on one income and probably will for a further year whilst we extend the house, change the car. But then the majority of my wages will be then go towards paying off the mortgage. Only OK as a temporary thing I think.

mrslurkalot · 09/02/2008 09:44

I think it depends whether you think your income will change enough in the future for yu to switch back to repayment/make lump sum payments off the debt. Another option would be to look at a mixture of repayment and interest only so that at least some of your debt is being repai. Personally I would go for interesy only short term but only if I knew income would increase in future (ie pt to ft) Good Luck!

IndigoMoon · 09/02/2008 09:46

as a short term its ok but i think at some point i would plan to switch to repayment!

RubberDuck · 09/02/2008 09:57

Sorry to be the sole voice of dissent, but personally, I think with the current market I think it's an extremely risky strategy.

Basically, if you can only get this property with an interest only mortgage then it's a huge red flag that you'll be over stretching yourself.

Given that energy prices are set to soar over the next few years, and more and more households feeling the pinch... I can't see interest rates staying this low for much longer either. House prices could well fall too leaving you in a negative equity situation.

If the worst happens and for some reason you can't make the payments because other costs have risen too much, where's your give? You can't switch to an interest only mortgage if things get tight because you've already taken that step. You might not then be able to sell and downsize if you're in negative equity.

I would think very very carefully about this step. Consider if you can maximize the space you have more efficiently. Is this really a "need" or just a nice to have? If you do go this route, please please PLEASE have good insurance in case one of you loses your job, or gets ill and can no longer work. Because if that happened you really would be stuffed.

noddyholder · 09/02/2008 10:00

agree rubberduck If you can only afford interest only you can't afford it!Sorry but its true.Interest rates are still low and will need to rise to beat inflation.In the US interst only is classed as subprime and look where they are.

RubberDuck · 09/02/2008 10:07

(I hasten to add, I'm not being mean... we almost lost our house once - normal mortgage with a payment holiday built in so we thought we were safe. Dh lost his job.

Mortgage company wouldn't give us a payment holiday due to some small print of it having to know what dh's salary was and a definite guarantee of when he'd be earning again. You can't get mortgage relief from the government even when claiming other benefits until you've been unemployed for over a year. Were bailed out many times by the inlaws.

He finally got another job on half the salary in another part of the country, but the house took AGES to sell. We were literally ONE month's payment away from defaulting when we finally reached completion. We had not overstretched ourselves. We had borrowed responsibly. We almost lost everything.)

alfiesbabe · 09/02/2008 10:33

Yeap - have to agree. Those of us who remember interest rates of 15% (god i sound old) know that actually, homeowners have it pretty damn good these days. Things could get far worse. Even if interest rates stay fairly static for the moment, fuel bills are set to soar.... If you can only afford interest only then the reality is that you probably shouldnt.

chocolateteapot · 09/02/2008 13:38

Actually I agree with the others. We have always had a safety net that we could cash in if things went wrong, which has influenced why we have done this and without it I don't think I would have. And we can afford to pay the repayment amount and beyond but are choosing not too as we want to extend the house.

I do think things are changing a lot at the moment and it really isn't a great time to be stretching yourself. Moving costs a fortune away, have worked out it would cost us 20k in fees and stamp duty etc, which goes a long way to getting us a 4th bedroom with ensuite, extending the kitchen and building a utility room. We are in Dorset so I know that the building costs are a lot lower than in London but I would look at trying to add to your house if you possibly can before going interest only.

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