Intrest free mortgage.. a good thing or bad?

chicos10

Our current mortgage deal has now expired and we are looking at our options.

While the safety of a Capital & Interest mortgage seems to be the norm, my husband feels and Interest only + ISA may be the way forward for us .


I understand that the debt is still owed after the deal expires, however what i dont understand is woudl be save for in the ISA's than we would just simply going with a C&I mortgage in the first place?

Does anyone know more about it?

Accountant_Kerry

Interest free! Brilliant mortgage. Interest only in the current economic environment of low interest rates bad idea, unless you can guarantee your investments will outperform the repayment mortgage method.

Thrugelmir

What is your husband considering investing in within the ISA wrapper. That will guarantee a better return?

chicos10

Thrugelmir - not sure what you mean?

He thinks that we currently pay £850pm mortg.. if we opt for intrest only, this will be £560, therefore the remainder (£290) goes into an ISA - this way we are still paying £850pm...

WOuld this idea really work?

Accountant_Kerry

cash isa or stocks and shares? you need the money in the isa to be making a bigger % than the interest on the mortgage costs. What is the interest % on the mortgage?

chicos10

Hi kerry.. thanks for replying.

We currently have int at 4.78%...no isa would be higher than this... i see now.

Thrugelmir

Over the term of the mortgage the amount of interest you'll pay will be higher than that you'll earn on cash savings.

So to achieve your husbands goal you would need to take a risk by investing in shares for example. The downside being that at the time you need to cash in the investment , the economy could be in recession again. Quite possibly the money saved won't even grow enough to clear the debt.

That's an old saying "only gamble what you can afford to lose". So as far as the house is concerned not worth the risk.

newgirly

Why not go interest only and then make overpayments on top of that, it will then be paid off as if it was a repayment, with the added security that you have the option to just make the minimum payment if you suddenly lose your job.

Thrugelmir

newgirly wrote: »

with the added security that you have the option to just make the minimum payment if you suddenly lose your job.

Little security. As once behind with the capital repayments. Increases the amount that's require every month to repay the debt in full.

After 20 years of a 25 year mortgage. 40% of the original capital advance is still owed.

d40eq6

I've been on interest-only mortgages since I got my first mortgage 10 years ago. I have been investing in a Stocks & Shares ISA which has performed reasonably well (amassed about 50% of my original mortgage- sadly only 20% of my latest mortgage). However I am about to remortgage and have decided to move to a capital repayment and leave the ISA alone. Reason being, the last 10 years have proven that the stock market is not the one way bet that it used to be. It is OK for long term investment, but by no means certain.

My view is that you should do a repayment mortgage, overpay when you can afford it and if you have anything spare get some good financial advice and invest a bit in an ISA. Don't do what some people I know have done and get an interest only mortgage with no repayment plan at all, because that's all you can afford. You've over-stretched yourself and that is a bad place to be.