interest only then pay capital?

bobby_davro_2

Hi there,
I was speaking to a friend who for the first two years of her motgage is only paying the interest.
After that she moves over to normal capital payments.

This certainly helps in the beginning when costs such as furniture are required.

Is this a common practice and is it easy to set up?
Are there any dissadvantages of this approach?

epz_2

ive heard of plenty of people doing it but frankly you can get interest free credit on most of the big stuff like sofas, fridges etc so i would think its better to pay them off incrementaly and reduce the debt.

it also has the nice effect of stopping you buying a load of stuff you probably dont need.

bobby_davro_2

it still helps to start off with though,
especially when paid for fees and other moving costs to begin with.

Is there no real dissadvantages of this then?

It would certainly help for the first few years

fivemice

If house prices fell, you would be less likely to have negative equity if you had been paying above the interest. If you have negative equity, you are unlikely to be able to remortgage too.

Alan_M_2

The first two years of capital repayments on a 25 yr mortgage are so negligible that any reasonable amount of correction would still cause negative equity, so I wouldn't consider that a reason in it's own right.

Personally I think interest only mortgages are morally wrong and are in fact partly responsible for the continued increase in HPI.

However a two year low start is not uncommon and not unreasonable, especially if you're employed in a business where imminent qualifications would mean an increase in income.

jyonda

Buy used furniture or get it for free from friends/relatives. The money would be best used reducing your mortgage or invested elsewhere for higher returns.

This is MSE after all.