Paying back only the interest on your mortgage is a great way to cut down on your monthly mortgage payments without falling behind on your mortgage. The most important thing to remember about an interest only mortgage though is that it is just a temporary solution and is not a long-term strategy for paying off your mortgage.
The Need For a Plan
Robert was in his late 20s and wanted to get his foot on the housing ladder, he was on a good wage and had saved up a 10% deposit. He wanted to buy a one bedroom flat in London and was confident he would be able to afford the monthly payments. He was successful in getting a mortgage and had been paying it back for around one year before he fell into difficulty.
“One day I went into work and they told me I was going to be made redundant, my first thought was how was I going to pay the mortgage. I had not taken out mortgage payment protection insurance as I never expected to get made redundant,” explains Robert.
He spoke to his lender and described his situation, he had been given quite a bit of redundancy money and could afford to pay his mortgage payments for a few more months but wanted to know if there was any way he could reduce his payments just for a short time until he found a new job.
“The lender explained I could revert to an interest only payment which would mean I was not paying off any of the capital debt of the mortgage, just the interest. It was not ideal as it meant my mortgage term would more than likely be extended, but if it meant keeping my house while I was unemployed it was good enough for me,” says Robert.
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Coming Off Interest Only
Robert stayed on interest only for 12 months. He managed to find another job six months after becoming unemployed but he wanted to stay paying interest only until he got settled financially. Once he felt comfortable paying his full mortgage payments he contacted the lender and asked if he would be able to start them up again.
“I wouldn’t recommend only paying the interest unless you really need to. It helped me out enormously, but if I had not started paying the full mortgage payments back soon I would have simply been racking up more debt,” says Robert.
Paying back only the interest on a mortgage should be something you think about doing for a couple of years maximum. Many people will only pay the interest if they know for definite that soon their circumstances will be changing or their property will definitely be going up in value.
Robert says: “A couple of years later I decided that I wanted to go travelling for six months, so when It was time to remortgage I opted to pay interest only for six months so my costs would not be as high when I was travelling.”
It can be hard coming off paying interest only once you have got into the habit, but you should always remember that your ultimate goal is to pay off the mortgage on your property and you will never achieve that if you only pay off the interest.
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