Interest only mortgage but only for three years

hazeyj

Hiya all

Hopefullly some kind person out there will be able to advise me on behalf of my brother (again).

He is thinking of taking out a interest only mortgage (FTB on right to buy basis) for a fixed period maybe two/three years whilst he does up the house etc. Then his wife plans to start work in two years when the kids have grown up a bit and then they plan to switch to a repayment mortgage. They are considering going with the Halifax.

Are there any pitfalls if he goes with this plan?

homer_j_3

Providing that your brother understands that the debt will not being reduced over the 3 years then I cannot see that he will be at too much risk because the council discount will obviously mean that he has not borrowed the full value of the property.

Clearly in 3 years when he is out of the pre-emption (discount) period, he will hopefully be in a better financial position..

hazeyj

homer_j wrote:

Providing that your brother understands that the debt will not being reduced over the 3 years then I cannot see that he will be at too much risk because the council discount will obviously mean that he has not borrowed the full value of the property.

Clearly in 3 years when he is out of the pre-emption (discount) period, he will hopefully be in a better financial position..

Brilliant..thanks for that. (where has that naughty thanks buttion gone?).

lightspeed

Personally i feel that IO mortgages are ideal for this exact situation. It enables the individuals involved to adapt (if they are FTB's) to the new financial comitments. Furthermore, if financial situations are likely to improve in the future, the individuals involved can remortgage to a repayment type as and when it becomes more affordable without missing out on there ideal home for the sake of 20-30K.

In general, i think that IO mortgages are better suited to a younger house buyer because:

1)they are likely to be at the begining of their careers and are likely to see increases in salary

2)they have got a greater scope of time to continually assess the situation and decide how and when they will be able to pay the loan off

3)enable indiviudals to stretch their budget slightly further to afford a house that they wont want to move out of in a few years time only to find themselves having to stretch a bit further anyway.

Obviously, people need to fully understand this type of mortgage and have some idea of what they intend to do in the future in order to pay it off.

hazeyj

Thanks for your indepth reply.

firstfootontheladder

ive just taken an interest only mortgage (97%) & i always seem to hear bad things about them, although for me it is ideal for the following reasons:

1, i can make the minimum payment of interest only (in my case it is £502)
(do remember that the capital oweing will stand still!)

2, or run it as if it was a repayment mortgage by overpaying £213 each month (repayment equivalent is £715 approx)
(i can over pay by 10% per year with no penaltys)
3, i am a FTB with a baby on the way & this allows us time to adjust to all the bills & general cost of living (finally in our own house :beer: )

in a few years i will be switching to a repayment mortgage.

regularsaver1

One of the requirements on Halifax mortgages - inhouse and through intermediatries now is to state what repayment vehicle is being used. i take it there is not one in place here?

hazeyj

I dont know what a repayment "vehicle" is. Is the same as a repayment method?

regularsaver1

sorry

like that they have savings/endowment, another house, ect to support it

it is a requirement to state what is used rather than just "other" which used to be able to be used

hazeyj

Erm I dont know but I am sure the people at the Halifax will have asked them this? I wil ask him tonight. Thanks.

regularsaver1

They should have as they are the new procedures