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Advice on Interest Only method please

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A financial advise gave my friend this advice, was wondering on what everybody thought?

Suppose an interest only mortgage came to £400 per month
Now suppose I did an I+C mortgage, which came to £500 per month

I would assume that the £100 difference would go straight against the capital.

According to this adviser this is not the case! Apparently only a small proportion of this goes against the capital, the rest against the interest!

Their advice is to take the £400 interest only mortgage and put the other £100 into a high interest account. Then at the end of your 2 YR fixed rate (for example) remortgage with the £2,500 against the capital.

Then repeat the process.

Is this right? Any thoughts?

Comments

  • toonfish
    toonfish Posts: 1,260 Forumite
    your friend is wrong - anything above the interest element will reduce the capital. Interest only is OK if you are confident that your investment return will be higher than the mortgage rate
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it.
    This signature is here as I follow MSE's Mortgage Adviser code of conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.



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