Interest Only Mortgage - Good idea?

buckman

Just having thoughts on an interest only Mortgage to buy somewhere?

We have a full repayment mortgage at the moment but have had thoughts on moving.

What are the pros and cons of going to an interest only?

Surely We could buy something a little bigger and larger budget and pay interest only, hoping that the market in years to come would have risen when we sell?

I've heard this idea a few times, and is it still possible to do "interest only" and is it around 50% of a repayment mortagage pcm to pay back?

begbeer

The main problem with an interest only mortgage is you must insure that at the end of the term you have the funds available to pay it off, You will also pay more for it in the end because with a repayment the interest proportion goes does with each payment whilst with a interest only it stays the same.

opinions4u

buckman wrote: »

What are the pros and cons of going to an interest only?

Pros - cheaper monthly payment
Cons - a huge debt that you have to repay at some point in the future

There can be cases where interest only is appropriate. But when you sell, how will you afford the replacement property?

Surely We could buy something a little bigger and larger budget and pay interest only, hoping that the market in years to come would have risen when we sell?

You probably wouldn't be able to borrow any extra. Why do you want to have a debt that will never decrease? Why would you want to be forced in to selling a house because you've no other way of repaying the debt? What if the market doesn't improve?

Most (possibly all) lenders will insist on a repayment vehicle anyway. Do you want an endowment? They're very good you know. They'll pay off your mortgage and give you a lump sum for a holiday or car at the end of it.

Don't do it.

buckman

Thanks for the advice..

Sorry am a bit new to all this, is an Endowmnet a better option?

jd87

Do endowments even exist any more? They are very risky and have cost a lot of people a lot of money in the past.

I think the advice to almost everyone these days should be, get a repayment mortgage, and if you can't afford a repayment mortgage you should be looking at a cheaper property.

_Andy_

If a repayment mortgage is affordable then stick with it.
Interest only will give you a monthly saving but at a cost in later years.
Hoping the property will rise in value is not a sensible idea nor is it one that lenders will entertain without you having a massive deposit. It also fails to address the question of where you will live at the end of the term when you are forced to sell to pay off the mortgage.
Investment vehicles such as ISAs/endowments etc do not guarantee to pay off the mortgage at the end of the term.

Cat695

I was looking into interest only mortgages

I believe they are only good if you know you will have the cash in the future to pay off the main amount.

the reason i see it as a good idea (if you have the funds in the future to pay it off that is) is because lets say 80k now will be worth less in the future so in theory you would be paying less.

ie house is worth 80k now in future same house is worth 120k however you still only own 80k......however it

really depends on the interest rates.......
that house WILL rise.......
YOU HAVE THE MONEY TO PAY OFF THE MAIN AMOUNT!

gooners69_2

I'm all for interest only if you are making a short term purchase. The payments on a repayment mortgage are mostly interest for the first few years, so if you plan to move on in say 5 years, you may well be better off with interest only.

I also have a question if anyones listening!
On an interest only if you make overpayments you reduce the value of your loan, i.e . make capital repayments.
If you make a 10% overpayment every year (10% being the normal max overpayment you can make without incurring a charge), are you paying back capital and therfore decreasing the interest? If so this seems to me be a cheap way to make payments, reducing your capuital when you can afford it.

Weresmydosh

my brother bought his first house on capital & interest for 97K four years later sold for 205K had paid next to no capital off so decided to buy a larger than he could afford house 365K but on interest only but with a 50k deposit sold it 3 years later for 594K
Says if he had gone down the capital and interest route pro-rata he would have lived in a smaller house and have around 180k less to his name.
I am on interest only at the moment due to loosing job in February however intend to return to capital and interest asap.