Basic Advice needed for Interest Only mortgages

lipidicman

I think the first payment works out at about 23% capital, the rest interest. Obviously any small cut in the payment would make the period of the loan much longer (this is how credit card minimum payments work). So only paying the interest seems a bad idea

Would I advise taking out a repayment over a longer period? Not really, no. If you cant afford a normal mortgage over 25 years then you should really be asking yourself if you are overstretching. If you were asking if you could have more than four times your salary, then fine: some people can afford to overpay because they can dedicate more of their salary than the average person (eg they dont drink, smoke or go out much). But if you cant afford the repayments, thats a different matter.

But, it depends on so many thing - if you know you will have more money soon, job security, how you think prices will go, interest rates? All I am saying is be careful!

Nicks_3

Interest only all the way and will explain why this is the only option if you want to accumalate your wealth opposed to "giving it to the banks.

Fact 1.

Money de-values in time. What you could buy for 1 pound 5 years ago is alot more than whay you can today. It is better to pay the min amount, and invest the remainder into another grouth investment.Your folks probably bought their house for 30k 20 years ago, now that is not a lot of monet in today terms, twenty years go, I bet their friends must have said thats crazy money, don't so it


Fact 2

Your propery will have growth/capital appreciation. so why worry

Fact 3
Setup a one acccount, where you just have one account,as you will save yourself a small fortune.

Create spreadsheets, let the numbers how you.factor in money deprection, ie buying power in today terms.

good Luck

lipidicman

Facts 2 and 3 dont seem to be facts at all!

Fact 2 needs a question mark and fact 3? 'Setup a one acccount, where you just have one account,as you will save yourself a small fortune.' Not if the interest rate is higher than a regular mortgage (and you dont have enough savings to offset) you wont!

But you are right, 30k is not a lot of 'monet' in today's terms, you probably couldn't even get a sketch by him for that!

Nicks_3

lipidicman wrote:

Facts 2 and 3 dont seem to be facts at all!

Fact 2 needs a question mark and fact 3? 'Setup a one acccount, where you just have one account,as you will save yourself a small fortune.' Not if the interest rate is higher than a regular mortgage (and you dont have enough savings to offset) you wont!

But you are right, 30k is not a lot of 'monet' in today's terms, you probably couldn't even get a sketch by him for that!

lipidicman

Houses do not depreciate if looked after, but people over extend on re-mortages that cause negative equity or pay higher than the market rates , sorry, that is FACT

Secondly, by having an one account, you are in affect not paying anymore on your payments,but automatically reducing your interest payments, yet again, another FACT

lipidicman

Houses do not depreciate? No, house prices can fall - FACT

Also, Offset mortgages are not necessarily cheaper - there are usually better options - FACT

slater14

What Nicks fails to point out is that you would be buying into a housing bubble which is at its very peak, some reckon the slide has already begun, I think its about to start soon.

My economics may seem old fashioned but they stood the world in good stead for hundred of years.

The only reason you need to buy your home "interest only" is because you cant afford to buy it in the traditional way (interest and capital repayment).

This has nothing to do with "our parents bought for xx amount". It has everything to do with housing being artificially inflated at the moment (just like tech stocks were).

6 months ago I was leaning towards a 30% market correction over the next 8 years. After news releases this week I have changed my mind.....I am now going towards a 50% market correction over 8 years (with a big crunch soon).

Once this happens, standard borrowing and lending will come back and all these horrible little bubble drivers like - interest only, BTL, 100% mortages, shared ownership, 100% + cash back mortages, self cert,...etc etc will disapear.

Apart from BTL, NONE of these mortages is a "new concept" they descened on our shores like a plague of locusts in the last boom (late 80's early 90's)...and disapeared once the correction began. They merely drive the price higher and higher and when it goes *pop* YOU are stuck with an "investment that is worth a fraction of what you bought it for, but still have to service the debt on what you paid.

dougk_2

Its also true that when prices of houses fall they then rise again and to a higher level than they fell. Its really depends how long you intend to stay at the property. If you plan (as best you can) for the future and buy a suitable property that can change with your needs then there is never a wrong time to buy in my view.

Ofset mortgages can work for or against you depeneding on your situation.

As nobody can accurately predict the future of the world....or in most cases their own life, then there are no right or wrong answers as to the way to go. As long as you are happy with the choice you made or learn from errors then be positive about it.

Nicks_3

Mango,

Also, have a look at wrapping it into a trust, I personally like the Soparfio's

Here's details on it.You can never predict how your circumstances can change,always worthwhile putting it in a trust.

Luxembourg has recently extended its participation exemption regime and
SOPARFIÕs are now subject to the normal rate of national and municipal
Luxembourg tax except that, subject to the fulfilment of certain
conditions, dividends and capital gains are not taxed. Such companies are
therefore able to take advantage of the EU parent/subsidiary directive
90/435 A SOPARFI is not excluded from the scope of the tax treaties
concluded by Luxembourg and this may make this type of company extremely
attractive for certain tax planning exercises. Luxembourg has signed tax
treaties with most EU countries, Canada, Czech Republic, Hungary, Japan,
Korea, Morocco, Norway, Slovak Republic, Switzerland and the US.

slater14

Or, you could use "history" (as DougK has done) by stating that houses will rise eventually. I know he's right. How do I know? "HISTORY" tells me dougk is right.

History also tells us that the average interest rate will be 7%....can you afford your house at 7% interest only?

John_M_Business

As a rule of thumb, Offset mortgages work best if you think that you will have the possibility of repaying MORE than your interest... however if you're thinking 'interest only' then offset doesn't sound like your 'bag'!