Need to raise money but want to keep the existing interest only mortgage
Interest only mortgages are by and large reserved for the rich these days so capital raising can be a real problem if the lenders won’t allow you to remortgage. but we have a way where you can keep the existing interest only mortgage.
That’s right most lenders have a notional minimum salary and equity requirement before they would even discuss interest only mortgages, and if you tick these boxes; they may still want a water tight strategy to be in place before they will entertain lending to you.
So if you have an “interest only” mortgage you want to keep it but in turn want to raise capital or debt consolidate a suitable alternative might be a second mortgage.
Before you get too excited I must point out second mortgages are usually at higher rates than standard first charges. Furthermore the chances are the second mortgage element will have to be on capital and interest repayment. The better news is the term can be potential longer than the current mortgage so this could reduce the monthly outlay albeit extending the term would add to the overall cost; as interest would be chargeable for a greater duration.
Second mortgages really come into their own if you want to borrow £25,000 or more, particularly if you want to hold on to your interest only mortgage.
Example of how a second mortgage can help you protect your current interest only mortgage
- Current first charge mortgage with Halifax £272,000 on a variable rate of 3.74%
- Need to raise £30,000 to consolidate credit cards and a personal loan
Property value £465,000
Your existing Halifax Mortgage is on interest only basis at costing you £848 per calendar month (pcm). If you converted this to repayment over 20 years the cost would be £1,611pcm. That’s right nearly doubling the cost. It would increase further still if you added £30,000 to consolidate your debts to £1,789pcm.
So the alternative is to keep your Halifax interest only mortgage debt consolidate using a second mortgage.
A current second mortgage product we can help you apply for costs £161pcm. This is based on repayment over 25 years. The Annual Percentage Rate of Charge (APRC) for the second mortgage is 4.4%. APRC is the total cost of the loan expressed as an annual percentage and helps you compare different offers.
To conclude £848 (Halifax) plus £161 (Second Mortgage), totals £1,009pcm. Suffice to say this is more manageable. It does not however free you from your original plan on how you plan to repay the Halifax Mortgage.
To find out how a second mortgage could help you keep the existing interest only mortgage and enable you raise money call Niche Advice T: 020 7993 2044 or complete the contact form on this website.
You are consolidating your existing financial commitments, you should therefore be aware that whilst this may mean you will make short term savings, over the long term, you may end up paying more. This is because you may be extending the period of the loan. You are also transferring previously unsecured debts to a mortgage which is secured on your home. The reason you want to consolidate your existing debts is to reduce your monthly outgoings.
Please also be made aware Lenders tend not to look favourably on applicants that have a repeated history of debt consolidation so future finance for this reason may be hard to obtain.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines.