Interest Only v Repayment Dilema

njbhorn

Sorry yet another IO question!

I currently have an Interest Only Mortgage (350K) and the deal is about to run out so I have lined up a new Tracker and cost for a Repayment is about £1500 a month.

This seems a lot to me so I am considering an Interest Only, so is it fair to assume if the Mortgage is 350K and the interest rate is say 3% then that is 10.5K a year or 875 a month?

Some 600 less a month?

It is our intention to sell the property in say 3 years and the current LTV is about 60% so we should comfortably pay off the mortgage of 350k from the equity (well I hope so anyway!)

Would the advantage of the repayment be we would have a 600 * months paid less than the 350K and is it just a matter oif whether I need the 600 now or can wait to get it back when we sell?

Sorry if I'm being too simplistic or if this doesn't make sense but keeping my monthly outgoings as low as possible has been something I followed on the basis that we are downsizing so the equity will pay off the debt so to speak.

Many thanks for any help.

Nigel

CLAPTON

if you go for the interest only mortgage what will you do with the money saved?

lazlo

Would you not have to take out some form of policy to cover the house? like an endowment or isa/pensions?

njbhorn

Clapton,

Good question, I guess I have nothing special to do with the money saved, in many ways I'd hope to save it which is where my current offset mortgage has been quite useful. So basically by taking the repayment option I am in effect saving some money for the next 3 years before I pay off the mortgage or reduce it after selling the property.

Lazlo,

I do have some life insurance that I took out to cover the interest only mortgage that we currently have so hopefully this can be used for the new mortgage.

Regards

Nigel

Spangled

Easy-to-use mortgage calculator here:

http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml