Interest only OR Repayment

anuarun

Hi !!!

I'm a FTB.
I'm in Uk for a period of 4-5 years and later shall return to my homeland.

Should i consider a 'Interest only' mortgage or for a 'repayment'?
I'm very confused .
Please help me!!!

Thank you,

AA

Bernard_Coleslaw

When you eventually leave the UK I assume you'll be looking to sell the property.

If you take interest-only, your payments will be lower as you're not paying off any capital. However, when you come to sell you have a larger balance to pay off, as the original amount you borrowed won't have reduced. You would need to be confident that the value of your property is at least going to remain stable over the next 4-5 years - if it falls, and you've borrowed a high percentage against it, it might cause you problems.

If you take a repayment mortgage you're going to be making higher payments to cover interest and to take some of the capital off the balance each month. So when you come to sell, there might be a little more to come back to you. Having said that, in the early years of a typical repayment mortgage the capital balance doesn't come down too quickly, as most of your monthly payment comprises interest.

I'd really recommend that you seek out some professional mortgage advice from an independent all-of-market broker. As well as quoting a monthly payment to you, they should be able to run through each of the scenarios above so you can see which works better for you.

Regards

BC

lynzpower

Id go repayment now. I have IO at the mo and it will expire in October. However, Im confident that the flat is worth more now than before ( inner london) but if its not, Im stuffed.

Next home Im definatley getting repayment - I cant bear the idea that every month Im paying £400 for nothing straight into the abbeys coffers!!

Bernard_Coleslaw

In most cases I'd agree with repayment as the option to take, but with the OPs intention to leave in 4-5 years time there might be a case for looking at an alternative strategy. Best to get some advice, I think.

Cheers

BC

cloud_dog

lynzpower wrote:

Next home Im definatley getting repayment - I cant bear the idea that every month Im paying £400 for nothing straight into the abbeys coffers!!

lynz, just a note if you go repayment you will still be paying the same £400 interest plus you will pay an extran to reduce the capital and this will thereby (over time) reduce the capital and therefore the interest. I know this is probably obvious but thought i'd comment.

Another thing worth considering, if you have a flexible mortgage (allows overpayments, payment holidays, etc) is to stick with an IO mortgage but to repay the same amount you would if you had a repayment. This would acheive exactly the same as a repayment but would give you some flexibility to draw on these overpayments of take repayment holidays if your circumstances dictated. All this assumes you can do the above. I am currently with Natiowide who allow this.

cloud_dog

monkeydust_2

what I am planning to do is an interest only but stick the difference on monthly basis into an investment product and then use this (in its whole) to pay of the capital (upto 10%) at the end of the year. Bit more risky but works for me.

lynzpower

cloud_dog wrote:

lynz, just a note if you go repayment you will still be paying the same £400 interest plus you will pay an extran to reduce the capital and this will thereby (over time) reduce the capital and therefore the interest. I know this is probably obvious but thought i'd comment.

Another thing worth considering, if you have a flexible mortgage (allows overpayments, payment holidays, etc) is to stick with an IO mortgage but to repay the same amount you would if you had a repayment. This would acheive exactly the same as a repayment but would give you some flexibility to draw on these overpayments of take repayment holidays if your circumstances dictated. All this assumes you can do the above. I am currently with Natiowide who allow this.

cloud_dog

I have a fixed IO at the mo, and Im looking to move and this was exactly the sort of advice I need. I am looking to get a flexi mortgage in my next place. Cheers :beer:

anuarun

Bernard_Coleslaw wrote:

When you eventually leave the UK I assume you'll be looking to sell the property.

If you take interest-only, your payments will be lower as you're not paying off any capital. However, when you come to sell you have a larger balance to pay off, as the original amount you borrowed won't have reduced. You would need to be confident that the value of your property is at least going to remain stable over the next 4-5 years - if it falls, and you've borrowed a high percentage against it, it might cause you problems.

If you take a repayment mortgage you're going to be making higher payments to cover interest and to take some of the capital off the balance each month. So when you come to sell, there might be a little more to come back to you. Having said that, in the early years of a typical repayment mortgage the capital balance doesn't come down too quickly, as most of your monthly payment comprises interest.

I'd really recommend that you seek out some professional mortgage advice from an independent all-of-market broker. As well as quoting a monthly payment to you, they should be able to run through each of the scenarios above so you can see which works better for you.

Regards

BC

Thank you for your advise BC,
I'm definately considering a repayment as itz not risky.....

Cheers,
AA