Interest Only vs Split Mortgage

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vfillafan

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I have been to the bank to talk about going on to interest only for a while (perhaps 6 months) as I have recently finished a 11 month contract. I have been on interest only 3 times before as when these contracts end and if I do not find a permanent job, then I cannot get another 11 month contract until 6 months has passed. However every time that the 6 months has passed I have been taken back.


During the time that I have been working we have been paying the mortgage payments (which include the capital shortfall spread over the remaining term) and have always stuck to our agreed payments. Recently we have also managed to pay an extra €200 euro approx on top of the basic monthly payment, as we have now paid down all our other unsecured debt. Obviously now I am between contracts we will be unable to do this until I return to work.

We are 10 years into a 20 year mortgage (initially €185,000) and we currently owe €122,000. The bank has mentioned the prospect of a split mortgage but I feel this is just kicking the can down the road and prefer to be paying interest only when I am between contracts and paying extra when I am working is the better option.


Obviously if the 11 months work 6 months off situation continues for several more years then we may get to a situation where we cannot service the payments even when I am working. My wife only works part time and is 5 years from retirement whereas I have 10 years working left.

So far the bank has not responded to our interested only request but even with other debt paid off anything more than the interest only payment when I am not working is a strain on our finances.

I just want to be prepared if they come back with a Split Mortgage offer so any advice on the situation would be greatly appreciated.
 
Grab the split mortgage with both hands if it's offered. I doubt that they will though from your brief description.

If you have a mortgage of €122k , on Svr or 5% , you are paying €6,000 a year interest.

If they split €40,000 into a warehouse, you are saving €2,000 interest per year if it's an AIB or ptsb split. In other words your repayments are being used to pay down capital instead of paying interest. (the principle is the same with BoI, but the saving is not as great)

In fact, I strongly suggest you write to whomever mentioned the split, and tell them that, on reflection, you think it might be the best solution and you look forward to hearing more details of the offer.

Brendan
 
Thanks for the advice Brendan, I forgot to mention that the value of the house is currently around 145,000 euro (20-22k in positive equity) and the interest only payment would be 450 euro. We have not been made a offer of the split mortgage but the adviser in the branch did mention it when we went to talk about a interest only deal. We are still waiting for the banks (ptsb) response and we have not rejected the split option out of hand.

From our point of view our mortgage is still sustainable provided that we have the option of going interest only when I am not working for short periods. Obviously that may change if I do not get suitable permanent employment in next 2 years but things do seem to be picking up in the jobs market and I am hopeful.
 
I don't know why they will offer you a split mortgage if you are in positive equity. They should simply tell you to sell it if you can't afford the repayments.

But you are on a SVR so they should be happy with interest only.
 
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