Interest only mortgage

HAH_3

Can anyone tell me, apart from the short term gain of not paying a repayment vehicle is there any benfit in using interest only motgages?
I can see that there is a big problem at the end of the term if you have no provision to pay. But can you effectively use this as a way to afford more in the short term and then hope for equity increase to pay off the mortgage company when you move lenders?
Is this the only answer or is there another benfit?

Mortgageman

An interest only mortgage allows you the freedom to find a more effective way of paying back the mortgage - this is normally through some kind of invsetment vehicle (endoment / ISA / pension for example) but could be through hoping that the value of your house increases enough to allow you to downsize to another property and pay off your mortgage - you could even hope that your stamp collections value increases enough.

There are a lot of possible benifits - which is why so many endowments were sold - there are no promises though, which is why there are so many dissapointments at the moment.

Was there a particular reason you asked - is it something you are considering or was it just hypothetical?

HAH_3

I am interested in the pros and cons as I am expecting to move house in the next 18 months and expect a further relocation within 5 years after that.
I am wondering if it is safe to give myself a capital repayment holiday for a few years and hope for an equity increase to pay off the mortgage company when I make the fifth year move and still have equity to take to the new house?

Mortgageman

I am wondering if it is safe to give myself a capital repayment holiday for a few years and hope for an equity increase to pay off the mortgage company when I make the fifth year move and still have equity to take to the new house?

No, it's not safe to assume that. You're gambling on the housing market continueing to increase. You will find opinion split on whether this will happen or not.

It is certain through that there is a risk that it may not rise - you need to decide on whether it is a risk worth taking.

MM

foot_loose

Can anyone tell me, apart from the short term gain of not paying a repayment vehicle is there any benfit in  using interest only motgages?
I can see that there is a big problem at the end of the term if you have no provision to pay. But can you effectively use this as a way to afford more in the short term and then hope for equity increase to pay off the mortgage company when you move lenders?
Is this the only answer or is there another benfit?

if u r planning to move u may as well have an intrest only mortgage this way u can save more.  
my mortgage is intrest only and im saving 350pounds a month.  this works out to 4200pounds a year.  i save 5800 a year add this with the money i save with an intrest only mortgage im saving 10,000 a year.  if i keep doing this for ten years i would of saved 100,000.  the added bounes is that the house still belongs to me, and the value of my house will on average double over ten years.  
then is 20 years time i will downsize pay off my mortgage with the equity and end up with a nice tidy some

dougk_2

If its a short term gamble (say 3-5 years) then house prices may not be any higher than they are now.

But if its a long term (15-20 years) then house prices will almost certainly be more as will most peoples salaries, unless inflation stops altogether and then the economies will be totally different.

For instance if I was earning 20k now in 10 years time I would expect to earning at least 30k (wage increases, promotions etc). In 20 years I would be expecting a salary of 45k.

Similarly I would expect house prices to increase to perhaps double what they are now in 20 years time in line with peoples earnings.

cloud_dog

if u r planning to move u may as well have an intrest only mortgage this way u can save more.  
my mortgage is intrest only and im saving 350pounds a month.  this works out to 4200pounds a year.  i save 5800 a year add this with the money i save with an intrest only mortgage im saving 10,000 a year.  if i keep doing this for ten years i would of saved 100,000.  the added bounes is that the house still belongs to me, and the value of my house will on average double over ten years.  
then is 20 years time i will downsize pay off my mortgage with the equity and end up with a nice tidy some

foot_loose, no disrespect meant but.......... I think your numbers could be a bit naieve.

You say you are saving £350 pm but to be able to say that saving money is more cost efficient than repaying it you will need to have a savings product that is paying more interest (net if you are a tax payer, gross if not) per annum than your mortgage interest. If your mortgage interest is greater than your saving interest (bear in mind net or gross rate) then you are not actually saving any money; your method is actually costing you money and you would be better off using the £350 to repay the mortgage.

The two methods acheive a similar thing it just depends if you want the most cost efficient method or prefer ready cash in the bank.

cloud_dog.