Interest only mortgage

Pete36

Hi,

Is it possible to get an interest only mortgage again? Our current mortgage is about 175k on a property worth 450k and we've got 13 years to run. We'll be getting some inheritance in a few months so mortgage will be down to about 125k I reckon.

My wife earns roughly 55k at the moment. I've taken myself out of the equation here as just starting up new self employment. My idea is that we could pay down this 125k out of the 25% drawdown in 14 years. Her pension plan is very good with 25% salary going in per annum and the pot is 170k at the moment. Some quick calcs state the drawdown will be high enough and shes been there 11 years. My idea is then to put the capital 'saved' into her scheme to get the 40% tax relief and also gets below the 50k child allowance threshhold.

I think this is a good idea and could only become unstuck if interest rates rise too much to offset the tax boost going into the pension scheme, just need someone to shoot down my logic!

Pete

ACG

Ive not tested your logic, but interest only can be done yes.

You need to have an acceptable exit strategy - ie how you will clear the mortgage at the end of the term. If you can evidence a healthy and/or growing pension then that could be enough, inheritance would only be accepted if the person had passed away and there is something to evidence it is coming to you - otherwise they may change their Will or outlive you.

Speak to a broker.

enjoyyourshoes

What happens if she looses her job and you still have an interest only mortgage?

How much cash per month will you not be spending on capital repayment element of mortgage?

Are the risks worth that 'saved' capital repayment amount?

ACG

enjoyyourshoes wrote: »

What happens if she looses her job and you still have an interest only mortgage?

The repayments are lower than if on a repayment mortgage and she looses her job.

Pete36

If she lost her job then I'd pick up the tab by then with regular earnings again. The inheritance is a red herring as that will chip down the mortgage before we go interest only. It's only the pension plan that'll be the repayment vehicle. So it sounds like a goer. Even the more modest illustrations that the pension plan send us show the future drawdown will be far in excess of our current mortgage debt so by putting in another 1k per month will only help!

Jenniefour

Might just be worth running some of this by the folks on the pensions board - it's not always the wisest decision to pay down a big chunk of the mortgage with a large windfall especially as you will be significantly depleting the future pension if you get an interest only mortgage. Helpful to consider what you are trying to achieve in the much longer term.

getmore4less

If you qualify this could be a candidate for a First Direct offset.

They can be run on an interest only basis

The inheritance becomes a pool to pay the interest if the jobs fail.

The offset offers good cashflow timings to optimize where and when any surplus goes.

Pete36

It wouldn't be depleting a future pension because the pension fund would be enhanced by the extra contributions+40%. If fact the danger is breaching the 1m pension pot allowance (that's a nice problem lol!)

Jenniefour

Pete36 wrote: »

It wouldn't be depleting a future pension because the pension fund would be enhanced by the extra contributions+40%. If fact the danger is breaching the 1m pension pot allowance (that's a nice problem lol!)

Brilliant!

Thrugelmir

What's plan B if the market dips at the time you need to liquidate the holdings in the pension fund to redeem the mortgage. Easy to become complacent after a decade in which the Central Banks interventions have made the markets benign. The next decade mght not be so investor friendly.

getmore4less

The pot may be big enough to continue the mortgage into retirement using drawdown and supplement with income if needed.