Repayment v Interest only+ ISA S&S savings

Andrew4444

I am looking to take out an interst only mortage as I believe that the reduction in repayments with interest only can be better invested in a stocks and shares ISA (over 20 year mortage term). My theory is that the rate of interest I will get in Emerging markets fund over the next 20 years will see my capital return higher than the capital I need to pay back at the end of the 20 year mortage period (or I will be able to pay of mortgage sooner).

My question is: do others thinks this is a reasonable approach and is it common that others have done or do this?... or am I taking a massive risk which has little chance of working???

Thanks

shortchanged_2

The choice and gamble is yours. However unlike some others you are at least attempting to put a plan in place to pay off the capital at the end.

Just remember with any gamble, some you win, some you lose, or as many others would view it the bigger the risk the bigger the reward. Although on the other hand the bigger the fall.

Wobblydeb

What is your investing experience like? Is this something you have done before and are comfortable managing? When do you anticipate the emerging markets growth spurt to slow, and what is your plan at that point?

p.s. I don't think the plan is unreasonable, and I would consider something similar myself. I would probably go for a more balanced portfolio than sticking it all on emerging markets though!

Andrew4444

Thanks. Although I appreciate it is a risk and maybe a high risk, is is something that is considered a sensible option. In short, is this something that is done or is this plan unheard of due to the high risk nature?

dimbo61

This all depends on your lender ? will they be happy to allow you to use a Stocks and shares ISA to repay a Interest only mortgage!
You have control of a S&S ISA and can take the money out at any time to buy that new BMW
Lenders are being very carefull over IO mortgages and unless you have a very big deposit and good income they may well turn you down.
Shares can go down as well as up

Andrew4444

Wobblydeb wrote: »

What is your investing experience like? Is this something you have done before and are comfortable managing? When do you anticipate the emerging markets growth spurt to slow, and what is your plan at that point?

I have been using HL Sand S ISA for a number of years. I will obviously monitor the capital increase and If there is going to be a shortfall I will be able to meet it. I intend to make monthly investmts to reduce the risk and get the benefit of PCA. Have you heard of anyone doing this before or is this an off the wall idea that no one does?

Andrew4444

dimbo61 wrote: »

This all depends on your lender ? will they be happy to allow you to use a Stocks and shares ISA to repay a Interest only mortgage!
You have control of a S&S ISA and can take the money out at any time to buy that new BMW
Lenders are being very carefull over IO mortgages and unless you have a very big deposit and good income they may well turn you down.
Shares can go down as well as up

I have not asked them as at this point I am trying to see if this option is ever considered / used. From what I have been told the lender will ask if you have an investent vehicle in place and if you say you have then that is all they can do. This may be a wrong assumption but I was told the rules are now less rigid. I may be way off with this assumption and they want precise details of my investment vehicle - but that was my undertsnding.

shortchanged_2

Andrew4444 wrote: »

I have not asked them as at this point I am trying to see if this option is ever considered / used. From what I have been told the lender will ask if you have an investent vehicle in place and if you say you have then that is all they can do. This may be a wrong assumption but I was told the rules are now less rigid. I may be way off with this assumption and they want precise details of my investment vehicle - but that was my undertsnding.

I think you'll find the rules are now more rigid than they were a few years ago. And as the other poster stated many banks are really not very keen to give out IO mortgages any more as in the past they have been abused.

luckyfool

ISA's are fine as repayment vehicles. Your monthly payments into the repayment vehicle/ISA would be taken into account for affordability and you will be subject to the individual lenders criteria on Interest Only. i.e. the vast majority will no longer do a new interest only mortgage at above 75% ltv, equally some are moving to differential pricing as well (such as charging a 0.20% premium on interest only mortgages to reflect a higher risk).

Andrew4444

Thanks. So it looks like it is a sensible option to repay via ISA S and S assuming lender is happy and the deposit is 25% +

Andrew