ISA for interest only mortgage

rajakumar

Hi,

I was speaking to a RBS about interest only mortgages and they told me that I need to have an ISA or pension for the period I was applying for if I'm going for Interest only mortgages.I was not sure about ISA that would running for 25 years. When queried they advised me to speak to a financial advisor.

Just want to check whether some had this experience and what ISA they mean? Is it the normal ISA they mean? In that case is that should be in particularly in cash or stocks option?

Any information will be helpful.

Thanks

dunstonh

Just want to check whether some had this experience and what ISA they mean?

Stocks and shares ISA is the typical vehicle used. Many experienced investors still do investment backed mortgages. Not ideal for the inexperienced investor or lazy investor though. e.g. if you are just looking at a FTSE tracker then you may as well not bother.

opinions4u

rajakumar wrote: »

I was speaking to a RBS about interest only mortgages

Why do you want an interest only mortgage?

Dan_1976

Makes me laugh, lenders trying to cover !!!!!! by insisting on ISA's that once labour are botted out will be replaced as were TESSA's etc when the Torys got kicked!

Depends why you need or want interest only!

dunstonh

opinions4u wrote: »

Why do you want an interest only mortgage?

Thats a good question as an ISA with a realistic target growth rate is not going to be any cheaper than a repayment mortgage.

rajakumar

I'm planning to hold the property for a short term 3-5yrs. If I go for repayment I will be paying mostly interest in the first few years. So I thought I will go for inerest only and pay 10% every year.

opinions4u

rajakumar wrote: »

I'm planning to hold the property for a short term 3-5yrs. If I go for repayment I will be paying mostly interest in the first few years. So I thought I will go for inerest only and pay 10% every year.

As you've discovered with RBS, some lenders require you to take out a suitable investment to support repayment of the capital at the end of the term. Some lenders won't verify if you actually do this (no idea what RBS do to confirm or otherwise).

But:

What you propose it as broad as it's long. Why not go on to repayment and overpay what you can anyway?

Paying interest only + 10% of the capital each year is a bit like taking a mortgage over a 9 year term (ish) on a repayment basis. The end result is the same.

In your shoes I'd probably take a long term repayment mortgage (e.g. 35 years) but be disciplined enough to overpay - perhaps 8% of the capital - to achieve a similar result to interest only + 10%.

That way you escape the need of the bank to see an investment vehicle and achieve the capital reduction that you want to.

Dan_1976

WHy buy a property for 3-5 your not going to make much back unless something amazing happens. Long term at the moment lenders are going to remain prudent with lending, this will keep property prices from going up up up!