Moving to interest only mortgage... not that simple?

Discussion in 'General Chat' started by markgodley, Dec 5, 2017.

  1. markgodley

    markgodley
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    I'm currently on a fixed mortgage which ends early next year. My wife is pregnant and is planning to stay off work for the next year so was thinking of changing to a interest only mortgage for 1-2 years. Then when she's back at work change this back to a standard repayment (we would also likely look to take out a bigger mortgage and buy a bigger house)

    I was under the impression it would be a fairly straight forward process, but from the lenders I've seen all require £90,000 - £100,000 income a year to qualify (which is more than the actual mortgage i have!) - i don't earn over this anyway so don't qualify.

    Any advice with this and my situation?
     
  2. Spendy26

    Spendy26
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    Yes was told the same about interest only mortgages ref the yearly salary a friend of mine wanted to go down this route. Could you not just get really low rate instead? Mine is only 1.4%.
     
  3. markgodley

    markgodley
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    I could but, i'd prefer interest only if it was an option.

    My fixed is about £500 a month, if i was to drop down to 1.4% i'd only save about £50 for the same term
     
  4. Spendy26

    Spendy26
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    What rate are you on now? Surely with rates as low as they are there won't be much saving going to interest only.
     
  5. Iain42

    Iain42
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    Do you use an Independent Financial Advisor? We used our IFA for our mortgage, and he was able to find just what we wanted.
     
  6. markgodley

    markgodley
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    I believe it's around 2.2%

    No I don't, could be worth getting one tho.
     
  7. MrSossidge

    MrSossidge
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    I think you need a high LTV aswell. Like 50% or so.
     
  8. Astaroth

    Astaroth
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    Not an IFA and not a topic I've looked into massively but with interest only these days the banks I believe are supposed to also consider your ability to repay the initial capital as well as the monthly installments to them and can no longer simply accept the "we'll sell it at the end of the mortgage" as the solution for your main residence. This may be why you are seeing such high salary requirements for an interest only.

    As others have said, either see an IFA or a whole of market Broker and take their advices.
     
  9. Liquid101

    Liquid101
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    If you're paying £500 a month on 2.2%, and you owe less than 90k, then I assume you have some wiggle room on the term.

    Let's say you have 18 years left - if you're young enough to take the term back to 35 years on a temporary basis, you'll knock about 200 quid a month off your repayment. Just make sure when your wife is back in work you put the term back down to 16 years!
     
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  10. has2mow

    has2mow
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    Could you ask for a payment break for say 6 months and bank that cash aside and use that to top monthly payments after that, you would only then add 6 months to your fixed term.
     
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  11. RBZ5416

    RBZ5416
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    Have you spoken to your existing lender to ask what options may be available? They may be more amenable to a period of interest only rather than a new lender. Or maybe see what options they have for a mortgage holiday.

    Edit
    Don't you just hate it when that ^ happens. :D
     
  12. SteveCritten

    SteveCritten
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    I swapped my interest only mortgage to a 5 year fixed at 0.92 just before the rate increase. I went to interest only though about 13 years ago as I always intended to sell up and move abroad with the proceeds (about £190k equity)
     
  13. shahedz

    shahedz
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    This is what I would do if possible . Extend length and over pay when convenient .
     
  14. markgodley

    markgodley
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    Thanks, i do have about 18/19 years left, so could look to extend to a longer term.

    Are there normally any issues extending to 30years for example, then wanting to borrow more in a few years or reduce the term back to a lower amount?
     
  15. shahedz

    shahedz
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    Not that I've experienced. There is a a age limit which will vary between banks. E.g. Nationwide will let you take 35 years as long as you're 70 or below by the time the mortgage finishes.A good broker is valuable here.
     
  16. jassco

    jassco
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    We've just done this. Our fixed term ended and we had 27 years left, but with planning a second baby and maternity leave we wanted more flexibility. We've gone with First Direct and got the longest term possible to take us up to 68 years old. The advantage of this lender, alongside good interest rates, is that they allow unlimited overpayments during the fixed term. So we'll be paying approximately 100% extra each month up until maternity leave starts, then reduce back down to the normal monthly payment when she's off and we've got less income. First direct were absolutely fine with this being the reason for extending the term
     
  17. SteveCritten

    SteveCritten
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    Agree to a good broker he will know the lenders to approach plus some banks/building societies only offer certain products through a broker.
     
  18. imightbewrong

    imightbewrong
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    Finding a mortgage which allows high or unlimited overpayments and then taking a long term can be a very flexible strategy, as long as you are disciplined and pay it off properly. It means you can lower your payments to the bare minimum without calling the bank. But you have to be able to commit.
     
  19. imightbewrong

    imightbewrong
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    Although I've never quite understood interest-only mortgages - since you still need to pay the mortgage off right?
     
  20. SteveCritten

    SteveCritten
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    I wouldn’t bother reducing the term just overpay when you can. You have more flexibility in the future that way. It’s easier to do it that way than reduce it then have to extend it again. I personally prefer to put the money in savings and pay a lump sum at the end of each year but you have to be disciplined.
    I work out how much I need to save a month for,
    1/ new car
    2/ holidays
    3/ paying off the mortgage
    4/ any unexpected events.

    Then at the end of the x years after having the recommended holidays I have enough with PX for a new car then pay the rest off the mortgage. Or if something comes up like this year I have a fairly big pot for business/investment opportunities.
     
  21. SteveCritten

    SteveCritten
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    As I say my idea was to sell up and down size I currently have the equivalent of a 6 bed house with the in laws living with us. Not wishing them away but obviously the time will come when they won’t be, my eldest has left for uni and has his own flat, my youngest is a few years behind. We just decided that we “needed” the monthly income now. My wife has MS and we wanted to make the most of whatever spending money we could have. Luckily she still isn’t too bad now I have supposedly retired so we still can make the most of it. I admit we are now using some of our disposable to start paying it off as it is starting to look like the in laws may cling on forever ha. But hey ho we make our choices in life and boy have we had a bloody good life.
     
  22. imightbewrong

    imightbewrong
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    So to summarise it's a way to lower the monthly payments? With the rub being you have to put that money in the bank anyway? Or have a concrete plan for how you are actually going to pay off the capital at the end.
     
  23. SteveCritten

    SteveCritten
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    Not really my original plan before in laws moved in was to sell up and pay it off. Apparently the sale of the property is a legitimate way of paying off the loan if planned for. I have only started to save money to pay it off when I retired 2.5 years ago. But as I say I am ending up using said money for something more lucrative....not bitcoins though haha.
     
  24. Bl4ckGryph0n

    Bl4ckGryph0n
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    I always saw them as a speculative tool to bank on increase in valuation of the property and then bank the difference on resale. A distinction I would use; a tool to buy a house, not a home.
     
  25. Jules Tohpipi

    Jules Tohpipi
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    I've been on a First Direct Offset mortgage for around 7 years now. My only monthly obligation is to pay the interest. It means it's like an interest-only mortgage except you must pay off the capital by the end of the term. But they leave it for you to decide whether you treat it like a repayment mortgage (which is how I do it) or whether you pay it all off in one go at the end of the term.

    This was a long time ago but I think perhaps First Direct still offer them.

    It works for me in the opposite direction because the offset mortgage allows me to make big over-payments at will.
     
  26. Jules Tohpipi

    Jules Tohpipi
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    Yes, it is a popular tool for landlords seeking to build a property portfolio. Not least of which because the interest part of the mortgage is counted as a 'cost of business' and hence could be offset against tax. Albeit, the government has recently decided to transition this down to a max of 20% over the coming years - so reducing the appeal of it.
     
  27. Eric

    Eric
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    Make sure you can overpay if needed. My first mortgage I could and did, massively! Second one with a different company, excellent rate, but could not..
     
  28. mrtickleuk

    mrtickleuk
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    That's news to me, where would you plan to live? Is there part of that sentence missing? "sell up and pay it off and live in a caravan?" :(
    If you have an IO mortgage you are part of a "timebomb" ('Time bomb' alert for 1.9m on interest-only home loans | Daily Mail Online) and your lender should have been writing to you every year reminding you that you have to have a payment plan in place and you've signed a piece of paper to sign to say that you understood this. If you didn't understand it, then tough, you signed.
    AFAIC "sale of the property" is now all but banned as a repayment plan, but as others have said, always speak to a good broker.
     
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    Last edited: Dec 6, 2017
  29. DOBLY

    DOBLY
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    ^ How many of those 1.9m are actually investment properties that are rented out, and how many are accompanied by other payment vehicles such as endowments, and their more modern equivalents?
     
    Last edited: Dec 6, 2017
  30. SteveCritten

    SteveCritten
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    As I have said several times I have a large house as my in laws live with us I plan to sell and down size. There is plenty of equity.
     

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