Repayment vs Interest only - calculations

dobymicks

Hi

I am finding it quite hard getting a £75,000 interest only mortgage.
If I go for repayment and just borrow more to make payments easier how does that work out overall.

£75,000 interest only at 1.79% no fees = £112 per month (affordable)

£75,000 repayment mortgage + (£50,000 used only for repaying the extra above £112)
£125,000 repayment mortgage at 1.27% £936 per month over 12 years.

£936 - £112 = £824

£50,000 / £824 = 60 months

If I went the repayment method, how much will I owe after 5 years?


Many thanks

Thrugelmir

What's your repayment plan for the mortgage?

dobymicks

We would sell a btl property to clear the mortgage

I was telling a mate in the pub tonight how I was finding it difficult to get an interest free mortgage and he suggested borrowing extra on a repayment mortgage and using the extra to pay the larger monthly instalments.

He reckons it would not work out much different in the end.

getmore4less

Where are you finding those rates.

How will you show affordability if you cant afford it.

getmore4less

The calcs are really easy with a simple calculator

http://www.whatsthecost.com/mortgage.aspx

using a more realistic rate of 2.5% over 12 years

£75k
1. interest only £156.25 say £157
2. repayment £603.40 say £604

in 5 years
1. £74,952
2. £46,416

borrow £50k extra, £833pm ( £49980)
add the £157 to make a payment of £990

£125k @ 2.5% paying £990pm in 5 years £78,423

the extra borrowing will cost £3471

(£50k/2 5y @ 2.5 is £3124 which is a rough guide to any amount/year/rate)

less any interest you can get before you need the money for payments.
there are savings accounts that will generate near that.

cost can also be reduced by using max overpayments.

dobymicks

Thanks getmore4less, very helpful. The rates were taken off moneysupermarket

We could afford the payments but prefer to have income for travel etc.
Our initial plan was to borrow £75 - £100,000 interest only and preferably offset to improve our current home.
With IO the payments would be very affordable with little impact on our disposable income.
I've not yet given up on getting IO but have had a couple of knock backs.
One did not lend to professional landlords and another had an minimum income of £100,000

Extra borrowing seems to work well over the first 5 years.
The remaining 7 years, we will both be 66, and would not want to sell a BTL at this point.
How easy is it likely to be to borrow a further £50,000 to repeat the process? given that our house will no longer be unencumbered.


[FONT=&quot]We would like an interest only mortgage for £75,000 on our home at ****** *****[/FONT]
[FONT=&quot]A recent valuation of the property was given as £590,000 and the property is unencumbered.[/FONT]

[FONT=&quot]The loan is for home improvements.[/FONT]

[FONT=&quot]We have no bad debt or any type of finance for cars, credit cards etc and have £35,000 in savings.[/FONT]


[FONT=&quot]Private pension income: £15,600. net per year.[/FONT]
[FONT=&quot]Private pension income £1,600. net per year.
[/FONT]
[FONT=&quot]Self-employed income: £10,000 net per year (sole trader) 16 years.[/FONT]

[FONT=&quot]Income excluding rental income is: £27,200[/FONT]

[FONT=&quot]Gross rental income: £48,900 - after mortgage payments: £31,428[/FONT]

[FONT=&quot]We understand that with interest only we would have to repay the full amount loaned at the end of the loan period and our repayment strategy would be to sell one/all BTL properties. The current equity in our BTL properties is: approx £430,000[/FONT]

[FONT=&quot]The current equity in our home is approx £600,000[/FONT]

getmore4less

Those rates are probably 2 year rates not 12 year rates

Once you come out of the promotional period you could be stuck on higher rates.

What's your CGT exposure like when you start selling?
You will need to manage that carefully.

Any room to borrow on the BTL if they are going to be the repayment vehicle then borrow against them.
What yield are the rentals getting(gross and net after ALL expenses not just mortgage)

You should be working with a broker.

dobymicks

[FONT=&quot]Thanks again

[FONT=&quot]The 2 brokers I have contacted cannot find a interest only mortgage but have advised to look [FONT=&quot]at small[FONT=&quot]er lender (building societies) myself

[/FONT][/FONT][/FONT][/FONT] [FONT=&quot][FONT=&quot]Our b[/FONT]uy to let only started 18 months ago. moving savings to increase income so not much chance borrowing of them.
[/FONT]

[FONT=&quot]We have 3 buy to let mortgages with ****
[/FONT]

[FONT=&quot]1. property value: £130,000 Mortgage: £87,642 Mortgage payments per month: £250.14 Rent per month. £650.00[/FONT]
[FONT=&quot]2. property value: £80,000 Mortgage: £61.632 Mortgage payments per month: £178.14 Rent per month. £525.00 (wife’s name only)[/FONT]
[FONT=&quot]3. property value: £140,000 Mortgage: £96,082 Mortgage payments per month: £277.36 Rent per month. £725.00[/FONT]

[FONT=&quot]We have 1 let to buy mortgage with **** which was our home for 8 years until October 2015
[/FONT]
[FONT=&quot]1 property value: £720,000 Mortgage: £390,000 Mortgage payments per month: £667.47 Rent per month. £2175.00[/FONT]

getmore4less

moving savings to increase income

That's the catch 22, if you can't fund capital investment from income/savings you need to borrow reducing income.

how long are those mortgages at the current rates are they interest only?

The rental yield on the £720k place is low(3.6%) so that's a price increase play. the mortgage rate is low(2%) will it stay that way?

The others are much healthier.

dobymicks

Thanks for all your help getmore4less.

I have just this minute got my IO mortgage in principal.

getmore4less

dobymicks wrote: »

I am finding it quite hard getting a £75,000 interest only mortgage.

dobymicks wrote: »

We would sell a btl property to clear the mortgage

dobymicks wrote: »

1. property value: £130,000 Mortgage: £87,642
2. property value: £80,000 Mortgage: £61.632
3. property value: £140,000 Mortgage: £96,082
4. property value: £720,000 Mortgage: £390,000

equity.
1. £42k
2. £18k
3. £44k
4. £330k

Only one of those will cover that debt.