Basic Advice needed for Interest Only mortgages

lipidicman

I agree with the above. NN's post has some good perspective, but 30 years? I would never consider paying a mortgage back over 25 years. With good budgeting you should be getting it paid back early to save on the interest.

mango1966

Again, thanks everyone for contributing in my quest to understand fully the pro's and cons of such a wide range of options.

New piece of info to throw into the ring...
At some point in the next few years i should receive a significant amount of money which I would put towards paying the mortgage off.

One thought i had was to start with a 30 year repayment to bring down the initial monthly payments (versus a 25 year repayment), then when the time comes pay off a lump sum and re-evaluate the situation then.

Lipidicman etc, how do you see it now?. I assume i would have to keep one eye on having a mortgage that was either easily escapable or choose one that doesn't punish for paying off lump sums?.

lipidicman

mango1966 wrote:

Lipidicman etc, how do you see it now?. I assume i would have to keep one eye on having a mortgage that was either easily escapable or choose one that doesn't punish for paying off lump sums?.

Oh thats for sure, but will you definitely be getting this lump sum - its nice when you can pay off a big lump sum, but should you be relying on this?

mango1966

lipidicman wrote:

Oh thats for sure, but will you definitely be getting this lump sum - its nice when you can pay off a big lump sum, but should you be relying on this?

Absolutely not, I do try and exclude it from my equations as it's not guaranteed but it is far more likely than not.

So what do you think about my initial plan (assuming, if you will that there is a lump sum in a few years)?

nadnad

Hi there yet again,
I just wanted to say that all you seasoned money experts obviously are in better financial positions than most of the rest of us - lipidicman you obviously are because I am quite sure that the majority of people take mortgages out over 25 years - I don't know anyone who has taken one out for less. My point is basically this in order to get a foot on the ladder a 30 yr mortgage seems to me to be a good idea - certainly better than renting forever which tends to be not much cheaper. I do not claim to be a money expert I just think that everyone has to start somewhere and as for this talk of if you have to take it out over 30 years then you can't afford it - thats seems very snobbish - loads of people require this option at least its a start and to me a sensible option. Mango could wait years before he can "afford" it according to your meaning of the word, we aren't all loaded and need to take oppportunities as they arise.

lipidicman

nadnad wrote:

Hi there yet again,
I just wanted to say that all you seasoned money experts obviously are in better financial positions than most of the rest of us - lipidicman you obviously are because I am quite sure that the majority of people take mortgages out over 25 years....

Ooops, you got me wrong. I dont even have a mortgage (I'll get me coat!)

My girlfriend owns our (ahem, her) house - paid for in 8 years (but houses were cheaper then and its no palace but it keeps us dry) by overpaying as her wages went up from being a student.

I would advocate taking out a mortgage that you can afford comfortably over 25 years and then hammering the b*st*rd down all you can, but thats just me. Better than wasting it on tat, or worse remortgaging to buy tat like some people do!

slater14

nadnad wrote:

Hi there yet again,
I just wanted to say that all you seasoned money experts obviously are in better financial positions than most of the rest of us - lipidicman you obviously are because I am quite sure that the majority of people take mortgages out over 25 years - I don't know anyone who has taken one out for less. My point is basically this in order to get a foot on the ladder a 30 yr mortgage seems to me to be a good idea - certainly better than renting forever which tends to be not much cheaper. I do not claim to be a money expert I just think that everyone has to start somewhere and as for this talk of if you have to take it out over 30 years then you can't afford it - thats seems very snobbish - loads of people require this option at least its a start and to me a sensible option. Mango could wait years before he can "afford" it according to your meaning of the word, we aren't all loaded and need to take oppportunities as they arise.

Sorry nadnad,

It wasnt a dig at you - I did say that what you said made sense, especially from your position.

I think one thing we must remember is prices can down as well as up. Nobody said this roller coaster called housing only went one way!

What I mean by "if you cant afford it" is just that. If you have to bend the multiples or repayment method, then you cant really afford it, the only way you can is by manipulating the debt to suit you....which is usually called "over extending".

Now is not a good time to buy into the property "market" unless you can pay it back on the standard 3.5x multiple capital and interest. If you cant afford that, then you cant buy......BUT neither can millions of others, so prices will correct to allow the "market" to flow again.

Stretching the debt merely stretches your chances of being caught out in the bubble or higher interest rates which must surely follow after recent events.

lipidicman

This has got to make sense - houses are only worth what buyers are prepared to pay for them, and despite government schemes if 'in 97% of towns key workers cannot afford to buy (or rent) homes' then where are prices going to go?

lipidicman

slater14 wrote:

If you have to bend the multiples or repayment method, then you cant really afford it,

Not necessarily, mortgage companies should do the calculation on disposable income not salary. One person can be 'rolling in it', on 30k a year where another would be struggling

mango1966

How long does a 'mortgage offer in principal' last?.

I want to get the ball rolling and work out what my likely outgoings would be though am unlikely to be moving until later in the year?.

Do they expire after a certain period?

Thanks