Interest only or repayment?

fimonkey

fimonkey wrote: »

Would I need to be looking to put the difference of £100pm into an investment that pays 5.5% net to be able to match the repayment mortgage? Is that how it works??
QUOTE]

Thanks Leon, your advice makes perfect sense to me. I'm disciplined enough at the moment not to spend spare cash, and an interest only mortgage would mean the difference for me being able to afford leasehold or freehold.

One more thing though, can anyone answer my question quoted above a bit more fully please?
Thanks

[Deleted User]

Leon_W wrote: »

Yant.

If you were in a position to buy a house 10 years ago for £60,000 with a £50,000 interest only mortgage or rent which would you have done ?

I know hindsights a wonderful thing and all that but ..........

I do agree with one thing however. You need to be disciplined to overpay on an interest only loan because there is always that temptation to just make hay while the sun shines.

You were lucky that it worked out alright, im not a gambling man so dont like to take on too much risk so I probably would not have bought a house 10 years ago if it meant borrowing more then i could afford, esp given i was doing gcses lol. I just think its a bad idea given the current climate -

http://news.bbc.co.uk/1/hi/business/6562723.stm

I think with the interest rate rises and negative equity, those that can afford overpayments may be forced to switch to interest only, thus those that can only afford interest only will be in trouble.

You are right that if the poster gets something like a nationwide 10 year fixed or other low fixed rate and then is disciplined enough to save the difference then it might work out well, given the offsets. However this level of financial discipline is very rare with the average person spending over there means nowadays.

gogsboy

Leon_W wrote: »

I think interest only mortgages get stigmatised and are always seen as the worlds worst mortgage option. This isn't the case. In specific circumstances they can provide all sorts of different answers to mortgage problems and as long as you realise that the capital is not being reduced then where is the problem ?

Most lenders will allow you to overpay within the ERC period without penalty anyway so you could take an interest only mortgage and overpay on it if you wish (effectively a repayment mortgage) or not as your circumstances dictate. Generally a much more flexible option than a straightforward repayment.

This is what I have done on a mortgage I have had for 5 yrs now, took it out interest only but been paying about £86 per month into a stocks and shares ISA. (EDIT -- Fimonkey...this might be of interest to you...see below for most recent valuation)

Over the course I have made overpayments of around 2.5k, Nationwide allow you to make £500 per month on my mortgage if you could afford to lol.

My investment is valued at somewhere in the region of 7-7.5k.

So not all bad...well I dont think? Yet everyone I spoke to at the time told me I was mad and it was too risky.

fimonkey

If I have 25K deposit on a 150K house, then I'm not gonna get into negative equity unless house prices drop by 16%.I intend to go for a three year fix however, as I may well want to move on by then, or at least re-mortgage.