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Interest only mortgages
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RHemmings
Posts: 4,894 Forumite
Can someone please explain interest only mortgages? I have my own views on them, but would like to hear the range of MSE opinions before my own viewpoint becomes too widely known.
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We have one, but we pay into two investment accounts to save towards paying off the balance. However we are thinking of moving and will take out a capital and interest mortgage next time, as retirement gets closer it seems to crystalise ones thoughts on such matters. Having an interest only mortgage has obviously reduced our payments and enabled me to have the option to give up work to care for our family when they were young. So in a way they have done the job for us, but we always had in mind the fact that we should be saving to cover the capital borrowed. If we do move then we will cash in our investments and use the money to actually reduce the mortgage we have, even though we are planning to go up about 30K in house value.0
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Well I have mixed emotions about this, having got one myself
Jekyll says its up there with one of the worst ideas that Ive ever had
Hyde says, when I sell my flat, if I make even 1k on it, then the IO mortgage was a good vehicle for that gain.:beer: Well aint funny how its the little things in life that mean the most? Not where you live, the car you drive or the price tag on your clothes.
Theres no dollar sign on piece of mind
This Ive come to know...
So if you agree have a drink with me, raise your glasses for a toast :beer:0 -
IO mortgages can work well if one manages it correctly.
As above, always have an investment that will repay the mortgage at the end of the term.
Always get an IO mortgage that has the option to overpay (without penalties), and one where the interest is calculated daily.
That way, if there are extra funds at the end of the month, use them to pay some capital back and also bring down the interest charges.
Tass0 -
My partner and I pay interest only.
We have only approx £50k mortgage on a £180k house and we've decided that in 15 years the house value will have increased by that much anyway. We bought at £150k. I'll worry about it if and when the time comes. Life's too short.Only when the last tree has died
and the last river has been poisoned
and the last fish has been caught
will we realise we cannot eat money0 -
I have a part repayment and part interest only mortgage. Basically to make the monthly payments more affordable. I have life insurance in place for any unplanned unfortunate events. I make extra monthly payment thus reducing the interest only side of the mortgage.
Mine was more of a needs must rather than outright choice but I am happy with it. It is also a tracker for life so I don't need to worry about changing it.£2 Coins Savings Club 2012 is £4
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NPFM 210 -
It can be a good option if you want to keep moving up with the idea that you downsize when you get older and pay off the debt. That way you could afford to live in a better house while you need the space, re bringing up a family. But if you can afford it repayment is the way to go.
Interesting in some countries all their mortgages are interest only, if house prices continue for some it may be their only option.Pawpurrs x
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We have an IO mortgage - it enabled us to buy a bigger house when we need it (young family) and my partner to stay at home / work less to care for our children while they are small. As they start to go to school she will work more and we can make bigger mortgage payments. We still overpay now sometimes when we have the money, but as I said it has given us the house we need now with lower payments.0
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personally it was the best option for me.
with me buying my first proper home with my girlfriend (been living at my parents for £250 combined rent), it made more sense for us to go down the route of lower payments each month whilst we adjust to all the extra expense.
the interst only mortgage is £560 a month where as the repayment would've been £850ish. so this extra "saving" will help us more.
yes we have done our budgeting, etc but as we haven't lived together "properly" then it was better for us to go the cehaper option.
Also we have nothing for our flat, so we need to completely kit the place out, again if we wish to get stuff on credit, the "saving" will help pay for them.
I understand some people say it's a waste of time, but being only 27 (nearly) we have plenty of time to start paying back on a repayment mortgage.0 -
From a FTB buyers perspective - I think they are only worth considering if the mortage payments are at least say 20% less than the rent would be - otherwise all you are doing is renting from the bank instead of a landlord, plus if anything needs doing to the place, then you have to pay for it yourself.
As prices have pretty much peaked in most areas, I cant see them getting much higher, especially for small flats and starter homes, so I dont think anyones going to make much money if they buy on an interest only, then sell within a couple of years as your fees will wipe out any small profit.0 -
We do not know if the market has peaked,I wish I had a crystal ball ,no -one knows really,so it is a gamble ,but think of your purchase as long term and a home ,and if interest only allows you to afford it and you can meet the payments long term go for itmi-key wrote:From a FTB buyers perspective - I think they are only worth considering if the mortage payments are at least say 20% less than the rent would be - otherwise all you are doing is renting from the bank instead of a landlord, plus if anything needs doing to the place, then you have to pay for it yourself.
As prices have pretty much peaked in most areas, I cant see them getting much higher, especially for small flats and starter homes, so I dont think anyones going to make much money if they buy on an interest only, then sell within a couple of years as your fees will wipe out any small profit.[FONT=Arial, Helvetica, sans-serif]To be happy you need to make someone happy.[/FONT]0
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