Help re interest only mortgage

pinky26

Hi sorry if this seems to be a recurring question have searched thread but am still confused, me and partner are currently renting but do want to buy, we are thinking of getting an interest only mortgage, fixed rate for possibly 5 years then switching to a repayment mortgage when we can afford the higher repayments, (once i graduate from uni) is this a sensible idea, i,m worried about continually rising house prices! any advice will be really gratefully recieved Many thanks

dwsjarcmcd

Provided you go into this with your eyes open, which you seem to be doing, I think that as an way forward it is fine. You obviously appreciate that you are not repaying any of you loan this way and you do need to be disciplined to ensure you switch to a repayment loan when you can.

Ensure that the mortgage you select has some overpayment ability (many allow this, say up to 10%) and then tip in any spare cash you can i.e. bonus's etc.

One way of looking at this is that it allows you to afford the house you want, against what you currently have. Just remember and plan for the facts, which are you are not repaying that loan, consequently it could work out more expensive in the longer term

Money_Watch

It sounds like you're in the same situation that a lot of us first-time buyers are in.

It's good that you're already thinking about switching to a repayment mortgage - do you have any plans for contributing to savings during the period your mortgage is interest-only (e.g. saving in an ISA)?

Rob

HelpWhereIcan

I have posted a link to an additional questionaire I am required to complete with a customer who wants an interest only mortgage to help make sure they are aware of the risks of taking out some or all of their mortgage on interest only.

IO Questionnaire

Yes, it does reside on my site, but I am unable to post attachments so it is the only way I can do it and is not touting for business. If the mods so decide, they can remove the link.

I have found that it is a great help to those who are not sure and will confess that the majority have then decided that it will be better to take a repayment mortgage over a longer period (up to 40 years depending on your age) in order to make sure that something is coming off the balance and that if you do nothing else, at least the mortgage will be paid off at some point.

Most website based calculators will be able to show the difference in payment

eg. £150,000 @ 5.5 interest

Interest only - £687.50
Repayment over 40 years - £ 773.66

Yes, there is still a difference, but is it enough of a difference to be unaffordable (especially on a fixed rate)? if it is, then what makes you think a repayment mortgage will be any more affordable in the future and should you really be taking a mortgage of this size? Not aimed at you, just the questions you may need to ask yourself.

Hope this helps

pinky26

Thanks for advice, the mortgage we are after is approx £120,000, but we are trying to pay for it purely on parnters income not taking into account anything else we have eg, child benefit, tax credits etc. I hope we can afford a higher monthly payment when i finsih uni but that is going to be 4 years from know, as i am also looking after two children, i just don't know wether to hold on and hope house prices don't go up to much or bite the bullet and go for it now as i don't want to keep throwing away money renting! Any more info will be much appreciated