Intrest only

britmark

we have applied for a mortage and we wanted to have a repayment mortgage, but the broker as said we should take out an intrest only mortgage and set up a mortgage savings plan.

What would you recommened and how do i go about setting up this plan and what would i have to pay in a month on a 80000k mortgage over 25 years.
Thanks
mark

herbiesjp

What is it about your circumstances that has made him come back with this option?

Do you like the potential risk associated with interest only mortgages?

stanmoresaver

britmark wrote:

we have applied for a mortage and we wanted to have a repayment mortgage, but the broker as said we should take out an intrest only mortgage and set up a mortgage savings plan.

What would you recommened and how do i go about setting up this plan and what would i have to pay in a month on a 80000k mortgage over 25 years.
Thanks
mark

Surely that question would be best directed at the original broker who would have the information available as to why he made that recommendation in the first place.

As with any situation where a professional has been engaged, if the need to ask a board like this exists, surely there must be doubts about the advice in the first place.

britmark

I spoke to the broker and they said for a repayment the monthly payments would be 550 pm with the intrest only it would be 440 pm.

the said that i could change to repayment later when i should be earning more money.

Does this sound right?

sarah_elton

britmark wrote:

I spoke to the broker and they said for a repayment the monthly payments would be 550 pm with the intrest only it would be 440 pm.

the said that i could change to repayment later when i should be earning more money.

Does this sound right?

Well yes, that's right.

Just bear in mind that say you're on interest only for five years. After that five years, you still owe the lender £80k.

If the mortgage is £80k, how much is the property you're buying? If you are putting down little to no deposit, any drop in prices at all and you're straight into negative equity.

If you can only afford the repayments currently on interest only, how will you pay into the mortgage savings plan.

I might be being dense, but can anyone else answer what the benefit is to interest only while paying into savings? I don't see it personally...

Rikki

A prority if you do go down the interest only route is life insurance to cover the mortgage if anything happens either of you. I know the property can be sold but if anything happens to either of you would the other want to sell their home?

lisyloo

I might be being dense, but can anyone else answer what the benefit is to interest only while paying into savings? I don't see it personally...

There are several reasons for an interest only mortgage.

1) If you believe that the return on the "savings" are greater than the rate on the loan then you would be better off this way. I think we are probably talking about "investments" here rather than savings. In my view for most people repayment is the way to go, but I wouldn't want to restrict choice.

2) If you can't afford repayment then I/O CAN be a solution. This might be suitable for someone who expects a bg rise in salary e.g. doctor, lawyer at the start of their career.

3) I/O can give you more flexibility. I have an I/O mortgage and I can give myself payment holidays at MY discretion and not the banks. Obviously this need discipline and for most people might not be a good idea.

In general I would say the advice given sounds poor.
For the vast majority a straight repayment is best.
Unless you are a sophisticated investor or have special circumstances.

Get another advisor.
If you don't understand what they are telling you then they are no good.