Who else has switched to interest only because you're 'allowed'

LaurieFairyCake · 2023-08-08T11:10:29+00:00

I just have [sad] We weren't allowed to 6 months ago when the COL rose beyond what we could manage - when we called them up they said we could only do it if we earned over £150,000 per year - Yay, another rule in favour of the wealthy [hmm] So we decided to do it today after the govt announcement a couple of weeks ago - couldn't get through the times we tried but they've now put a form up to apply where you don't have to call I feel like crap doing this, but have to.

RoseBucket · 08/08/2023 12:24

The building society I’m with is still saying a min £300k equity. I’ve got around £65k equity but could do with going interest only for two years whilst I start retraining.

Do they guarantee your application will be successful. I’d read up on the reach out campaign but not sure if I’ll qualify. My mortgage will be 52% of my income!

RoseBucket · 08/08/2023 12:27

Ah just noticed it’s only for 6 months.

Original poster

LaurieFairyCake · 08/08/2023 12:28

Yes, it's only for 6 months

I'm hoping rates go down so we can start paying again as it's gone up £800!

OP posts:

Original poster

LaurieFairyCake · 08/08/2023 12:29

And yes, it's guaranteed for 6 months with no affect on credit rating

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Comefromaway · 08/08/2023 12:29

I had an interest only mortgage as a stopgap when our house sale fell through so that we could still buy our new house. Our income was about £65k at the time.

I wouldn't have one under any other circumstances.

LookingForFreeDoughnuts · 08/08/2023 12:30

I'm moving from a 1.89% mortgage to a much higher rate in October, as soon as it's sorted I'll be asking for the 6 months interest only option; we are selling up next spring so the temporary nature of it doesn't worry me.

It's all a bit shit even so.

Original poster

LaurieFairyCake · 08/08/2023 12:33

Well the recommendation is that everyone on a variable rate should do it as rates are high at the moment - and if you can afford (we can't) to save the money and rates go down in 6 months you can use the money you saved to pay a chunk off the mortgage

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DrySherry · 08/08/2023 12:54

Do they add the unpaid interest to your mortgage balance or is it the lender or the taxpayer swallowing the loss ??

smooththecat · 08/08/2023 13:05

They will still be paying the interest. It’s an interest only mortgage.

How possible is it for people to extend the term as an alternative? My fix ends in 2025, so I’m hoping for a better picture by then.

RoseBucket · 08/08/2023 13:15

@DrySherry I think you’ve misunderstood the term interest only??

pamplemoussemousse · 08/08/2023 13:49

DrySherry · 08/08/2023 12:54

Do they add the unpaid interest to your mortgage balance or is it the lender or the taxpayer swallowing the loss ??

They are still paying the interest... just not the capital.

Notyetthere · 08/08/2023 13:50

@DrySherry Interest only is exactly that. You pay the interest but pause payments on the principle amount.

StillWantingADog · 08/08/2023 13:55

I did this when I bought my first house in 2006. At the time the lender had no choice other than to agree. I totally trusted myself to make sure I had other means to pay it back. If you do then I see no issue with it. For six months it’s a totally reasonable thing to want to do.

Mojodojocasahaus · 08/08/2023 13:55

Was it not better to extend the term to reduce the payments. Interest only is not good, just extends the length of the loan

Corrag · 08/08/2023 14:07

Well the recommendation is that everyone on a variable rate should do it as rates are high at the moment - and if you can afford (we can't) to save the money and rates go down in 6 months you can use the money you saved to pay a chunk off the mortgage

I don't understand this. You don't pay any capital for the six months but you save the money and pay it as a lump sum at the end of the six months? Why is that of any benefit? Might as well be paying the capital each month. Am I missing something?

Original poster

LaurieFairyCake · 08/08/2023 14:12

I couldn't extend the term as too old

OP posts:

JaukiVexnoydi · 08/08/2023 14:20

Mojodojocasahaus · 08/08/2023 13:55

Was it not better to extend the term to reduce the payments. Interest only is not good, just extends the length of the loan

So basically they are the same thing? In both cases the length of the loan is extended.

Going interest-only for 6 months may be the right choice if the high interest rates are "just a blip". If you will be able to remortgage with a lower rate in 6 months time then you can probably catch up and finish paying off your mortgage on the original timescale.

If you extend the term to reduce the payments, the effect will last for the whole of the rest of the term - you will be making lower contributions towards discharging the capital of the loan for the next howevermany years. This may be the right choice if higher interest rates are here to stay.

We don't have a crystal ball so who knows what is right. Whatever you go for, paying as much as you can afford into your mortgage is a good thing, but if you need that money for eating and heating it is OK to minimise the mortgage payments while weathering this storm.

Comefromaway · 08/08/2023 14:44

With interest only your term is not extended. Your payment amount increases after the interest only period has ended to catch up with what you missed.

When you extend your term your payments decrease, but not usually as much as they would decrease on interest only as you are still paying some of the capital off as well as the interest.

Dodgygeezer · 08/08/2023 15:34

Interest rates won’t be any lower in 6 months than they are now. They could be higher. See recent Bank of England comments

Isyesterdaytomorrowtoday · 08/08/2023 15:37

Corrag · 08/08/2023 14:07

Well the recommendation is that everyone on a variable rate should do it as rates are high at the moment - and if you can afford (we can't) to save the money and rates go down in 6 months you can use the money you saved to pay a chunk off the mortgage

I don't understand this. You don't pay any capital for the six months but you save the money and pay it as a lump sum at the end of the six months? Why is that of any benefit? Might as well be paying the capital each month. Am I missing something?

You’d be earning interest on the capital in a savings account

Chewbecca · 08/08/2023 15:41

LaurieFairyCake · 08/08/2023 14:12

I couldn't extend the term as too old

How does that work then? If you aren't paying any of the principle for 6m or adding extra time at the end of the term does that mean you are obligated to make higher payments at some point during the remaining term of the loan?

Forgoodnesssakewhatnow · 08/08/2023 15:41

Dodgygeezer · 08/08/2023 15:34

Interest rates won’t be any lower in 6 months than they are now. They could be higher. See recent Bank of England comments

Exactly this. I wouldn’t be relying on rates being lower in six months.

Chewbecca · 08/08/2023 15:43

Isyesterdaytomorrowtoday · 08/08/2023 15:37

You’d be earning interest on the capital in a savings account

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You would need to earn a better rate than your mortgage interest rate to make this a worthwhile approach. Not forgetting income tax on interest earned now coming into play for a lot of people with savings.

Isyesterdaytomorrowtoday · 08/08/2023 15:45

Correct, which it is for most people at the moment. Many people also have tax free allowance on savings or use ISAs etc.

wasn’t suggesting it’s right for everyone but it does benefit some

Corrag · 08/08/2023 15:49

Chewbecca · 08/08/2023 15:43

You would need to earn a better rate than your mortgage interest rate to make this a worthwhile approach. Not forgetting income tax on interest earned now coming into play for a lot of people with savings.

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And wouldn't you need to take into account the extra mortgage interest on the deferred capital repayments? I can't see it being worthwhile for most people. Any benefit would surely be minimal.