Settle an argument for me....?

sarah_elton

Was having a 'discussion' with a friend in the pub on Saturday night...

As some of you know, I'm just completing as a FTB, £115k mortgage, repayments £617/month.

One of my friends is planning to buy a house. He reckons he's looking at up to £250k mortgage, and that the repayments will be in the region of £600 a month roughly.

I asked how. And this is where it gets sketchy...

He said he didn't have all the details, but it was something his parents suggested. They are close to owning their home (probably worth £250-300k ish), and somehow, by getting a mortgage with their mortgage company, the collaterol in the home can be used to get this level of mortgage at that repayment level.

Unfortunately that was as much as he knew at that point.... One thing I know is the mortgage would be with his dad as guarantor.

Is this possible? Any ideas what he's referring to?

My point was, if £250k (say) is borrowed from the bank over 25 or 30 years, that money still needs to be paid back. Just by having collaterol elsewhere, the repayments are surely still £1200 a month or whatever they work back to, as it's just a loan that must be repaid.

He thought that if I'd got a mortgage on identical terms to mine, but with a deposit, it would have been cheaper. I said no, if it was same interest rate, some term, and I'd borrowed £115k for a £135k property and had £20k deposit, the repayments would be identical. [Leaving aside the fact at <100% you can usually get a lower interest rate]

Anyway, apologies for the long post, but very curious if what he's starting to look into is possible... And if so, why didn't I think of it since my mum owns her house?!

silvercar

The only thing I can think of is that he can access a VERY good deal by his parents acting as guarantors. But that rate would be very temporary, probably only 6 months.

I agree with the rest of your thinking; at the end of the day interest will be charged on the whole amount borrowed and the capital will need to be paid back at some point (even if he's banking on inheritance to repay the capital).

sarah_elton

Thanks - that's all I could think of too but even then..... Not tried putting in stupidly low rates yet on a calculator.

He's not thinking of inheritance - was convinced it's something to do with the collaterol (am I spelling that right? looks funky).

He does have savings for a deposit, but I think that's only around £15k ish.

It's slightly academic as he said he doesn't want to spend up to that much anyway, it just turned into quite a lengthy discussion till we gave up until he can provide more details.

EDIT: Just texted him with the above, and he's just remembered it was £600 each when he was considering buying with his brother....! Never mind then.

Daniel_B

Sarah,
I reckon he has some random figures in his head :-)

£600 per month, means it would take him 35 years to clear £250,000 IF he paid no interest at all....

Perhaps you can use the value of another house as an 'offset' on another mortgage, so perhaps if they use £250,000's worth of the parents house, then they could manage it that way, and I imagine you might be able to get a 35 year mortgage these days?

Dan

dunstonh

LOL - so it was his share of a joint mortgage.