interest only on local authority mortgage

superfan

Registered User
Messages
98
If you have a mortgage with a local authority and go interest only does anyone know if they only allow it for a certain amount of time and if the principal remains the same or are there penalties?
 
They grant it for six months at a time. You have to reapply at the end of that period, and the rules have become increasingly stringent. You can be sure they will not allow you to keep renewing it indefinitely, but a few years is not unheard of.

When you resume paying the principal it will be higher than it was when you went on interest-only. I don't think this is a penalty per se though, it's just compensating for the capital you didn't pay previously. It shouldn't be a huge increase over what it would have been otherwise.

Above applies to DCC, not sure if it works differently with other local authorities.
 
Thanks Brooklyn,yeah I'm with DCC.bit unfair that the principal rises but if that's the rule so be it.
I had a conversation a while back with them about it and they said 6 months at a time alright,I think they said for a maximum of 2 years in total.
 
bit unfair that the principal rises

Well, it has to if you're going to pay off your mortgage within the term.

I think they said for a maximum of 2 years in total.

That's the official line. Not always strictly adhered to in practice, but you'd probably need a convincing reason to extend it further.
 
When you resume paying the principal it will be higher than it was when you went on interest-only.


If you pay the full interest on a loan, the principal does not rise. The principal remains the same.

If you pay more than the interest, the principal comes down.

If you pay less than the interest, the principal rises.

When you resume making full repayments, the repayments will be higher than they would otherwise have been if the term remains the same.
 
Cheers BB,so the repayments rise and not the principal?
That's understandable if the principal is to be paid within the 25/30/35 year period.
 
Sorry, my poor use of terminology. I meant your repayments of the principal obviously.
 
Back
Top