Interest Only Mortgages

Phil_rich

Evening all,

I am currently looking for a place to move into with my partner and as i cant get a mortgage myself i was looking to rent. However the average price in my area is £400 per month.

Now i have spoken to my father he might be willing to get a joint mortgage with me if this is possible so i can get an Interest Only mortgage. To me this seems a better option as the re-payments would be slightly less than the rent.

What i would like to know is, can anyone see any pitfalls in a interest only mortgage over a rented house?? and is it possible to get a joint mortgage with a family member who isnt going to living in the property??

Many thanks for any input you have

Phil

surfcat

yes. Firstly, are you sure the interest payments are less than rent for your area? How much less? In many places now houses are so overvalues and rents so low that with an interest only mortgage you are effectively paying rent to your landlord (the bank). Remember when comparing rent and interest only you should factor in all the additional costs that would previously been covered by your landlord (couple of grand for a new boiler, more comprehensive home insurance etc).

Also remember you will need to be putting your money aside to pay off the capital in 25 years time (or whenever). Personally I would continue to rent and put money aside for a bigger deposit, allowing you to get a normal mortgage in the future.

homersimpson_3

With renting landlord responsible for repairs and you can move freely between properties (subject to giving notice etc). When you own your house it's yours, can dispose of it in will but you can become responsible for all repairs (and believe me, it can be expensive!)
Yes you can get a mortgage with family member & some building societies/banks have special packages for this type of thing. With interest only mortgages you only pay interest on debt and not any of the debt itself (debt called the capital). Please clarify where is the money is to come from to purchase the house? If it is to be borrowed you will have to show building society you have vehicle for paying off debt - how do you intend to do this? Is mortgage to be in joint names - if so you become jointly and severly liable- any form of mortgage is a legal contract binding on all parties- you need to consider what would happen if you had a falling out with father. Does your father have sufficient income/savings etc to continue paying mortgage after retirement. Standard mortgage = 25 years but can repay in shorter time. Also the way you manage finances can (depends) affect rights of ownership in relationships (e.g. who pays for what, from which bank account mortgage is paid etc). Another words your partner (who presumably will live in house) could have (and only could) depending on the way you manage budget/finance etc claim a share of house. Suggest you speak to solicitor/CAB etc. Some unions have 24 legal helplines. The matter is very complex and you need to protect your own interests.
Homer

Phil_rich

homersimpson wrote:

Yes you can get a mortgage with family member & some building societies/banks have special packages for this type of thing.
With interest only mortgages you only pay interest on debt and not any of the debt itself (debt called the capital).

Thanks i will try to find some of these special packages to find some more info.

Please clarify where is the money is to come from to purchase the house?

The money to purchase the house would come from the bank via the mortgage.

If it is to be borrowed you will have to show building society you have vehicle for paying off debt - how do you intend to do this?

The money would be paid back by myself via the normal routes. Also the bank wouldn't allow us to have the money if we couldn't pay it back

Is mortgage to be in joint names - if so you become jointly and severly liable- any form of mortgage is a legal contract binding on all parties- you need to consider what would happen if you had a falling out with father. Does your father have sufficient income/savings etc to continue paying mortgage after retirement. Standard mortgage = 25 years but can repay in shorter time. Also the way you manage finances can (depends) affect rights of ownership in relationships (e.g. who pays for what, from which bank account mortgage is paid etc). Another words your partner (who presumably will live in house) could have (and only could) depending on the way you manage budget/finance etc claim a share of house.

We know the house would be in joint names, mine and my fathers but i would be paying it back. As for a possible falling out, well we never have before so dont ever see this as a possibility. Also my father does have enough income to cover the payments if i couldn't pay in the future (god forbid)

herbiesjp

There are ways of doing what you intend to do. However it will depend on your current circumstances and affordability (as calculated by the lender).

If you are looking at a guarantor mortgage, then it can be done so that only your name appears on the deeds.

Scott

Interest only mortgages won't be agreed unless you have a repayment vehicle, i.e. lots of money in your bank account, lots of property, an endowment, an ISA which will meet the target at the end of the term, etc.

Long and short, it might prove trickier than just telling them you'll save up.

herbiesjp

@ Scott

Nowadays you will find that interest only mortgages will be agreed by lenders at the outset, even if applicants do not have a savings vehicle in place yet.

You will find on the offer letter that it stipulates that it is up to the applicant to make sure that they have looked into this option, and that it is their responsibility to take appropriate action.