Interest Only Mortgage for two years

[Tyler Durden]

I'm one year into my mortgage & have only been paying interest so far.

To summarise, my mortgage is for 220,000 & I have been paying 536 per month.

I got a summary from my bank & it actuallys shows that I now owe more than when I started (220,500).... How can this happen ?

My plans are to build a house on family land in the future (12-24 months) so I hope to sell the apartment during that period.

My question is what are the pros & cons of sticking to paying interest only for another year ?
Will the bank charge any penalties for switching to regular payments ?

Thanks in advance,

John

 

[thewatcher]

You must be on a variable rate mortgage,interest rates are rising.So just to keep your mortgage at the level it is now you will have to increase the interest payments for a start,thats why you mortgage is getting bigger (your not even covering the interest).

Your only option is to increase your payments if you want to make a start on the principal,shouldn't be any penalties if your variable. Check your rate though and expect more rises !.

 

[liteweight]

I questioned this with my banks also. I was told that when interest rates increase, the bank notifies me but the payment is not taken out until the following month. This leaves me technically in arrears. For example an interest rate hike in March, bank starts charging in April but extra interest is still due for the weeks in March subject to the rise. I was annoyed as I'd never been informed that this was happening and, therefore, for the rest of the year, I was paying interest on interest!