Interest Only Advice

Keyser_Soze_5

Firstly, appologies if I'm cross posting here, or doing wrong...forgive me, I'm a newbie lol.

Its that time again, two years up, and its time to enter the mine field that is remortgaging for a better deal.

If this isn't all completely confusing enough, I'm looking for some advice, info, whatever anyone knows about Interest Only Mortgages.

I have been a strictly Repayment boy for the last three years and my discount is about to end. I'm intrigued by IOM's and want to know if it is possible for me to invest my money in something which I choose inorder to build my pot to pay off the balance, or is it a case that I have to do what the Provider tells me to do with my cash?

Any help would be appreciated.

Mortgageman

Many (most) lenders nowadays do not require assignment of policies, so you can pretty much invest in what you wish.

It is important to realise there is an risk of not having enough capital to repay your mortgage (as has happened with some endowment policies).

You could of course, be lucky and end up with a surpless - but the fact remains that the only guarenteed way to repay your mortgage is with a "capital and Interest" (Also called repayment) mortgage.

Keyser_Soze_5

Thanks MM.

Good news about the 'investment freedom' aspect of this.

This is kinda an experiment for 2 maybe 5 years, never long term...am far too cautious by nature lol.

It dawned on me that if I did this for 'x number' period, stuck some cash in say a non'shares ISA then drew it out and paid it off the mortgage I would reduce the amount better that I have been able to do on my repayment mortgage of current.

Is it me?, or am I not seeing the catches yet?

Mortgageman

With a repayment mortgage, as you repay the capital, you have a lower debt on which to pay interest.

So your investment will need to perform better than the compound capital reduction.

AS an example - £100k loan, 5% interest rate, 25 year term.

On an I/only mortgage you will pay £125,000 interest, and still owe £100k at the end

On a repayment mortgage you will pay £175,200, and owe nothing.

So the £50k difference in payments (what you would in effect be investing) need to return £100k over the period.

Keyser_Soze_5

Thanks MM...this stuff sends me dizzy, I went to Art College lol.

I reckon we are all looking for 'That Deal'...but we usually end up just going for it and opting for something that will do the job, afterall, its only two years lol...I get to do it all again this time 2006  :-/

Mortgageman

You just need to decide on your priorities, and make sure you understand the phrases.

There are a load of us here that are happy to help out with any questions you may have.

Keyser_Soze_5

Nice to know that ppl are around that can jargon bust this area...as I defo dont understand the ins and outs and all language used. Thanx for that.

The priority is to get the mortgage down as quick as possible and a deal that is gunna let us overpay and potentially invest money to gain growth inorder to slap great wads of cash off after a year or so is the Holy Grail lol.

It seems that a Flexible Mortgage is gunna give us the freedom to overpay, probs the seperate investment aspect is not such a big deal...afterall, if we have the cash to overpay, what do we need to invest it for? Why not just use it against the mortgage anyway?..WOW, this must be what therapy is like lmao, now i type it it all starts to seem more clear...nice one MM!

Now, tell me about your childhood!

Unbelievable_2

Just curious - is it still the case that repayment mortgages are front loaded from an interest paying point of view? If so then wouldn't a short term interest only mortgage look more competitive than it does in the example above? ???

Keyser_Soze_5

Thats what I initially thought...before my head started hurting with it all and now I just want my mummy lol...hopefully the IFA is gunna show the way tomorrow...either that or I'm just gunna sign up for something to stop the dizzy spells.

Mortgageman

Just curious - is it still the case that repayment mortgages are front loaded from an interest paying point of view?

It depends what you mean by "front loaded" - you certainly pay more interest in Month 1 than you do in say month 298, but that's obvioulsy because you owe more.

The point is, I guess, that at some point you are going to have to pay off the mortgage - and you can chose to do this on either an interst only, or on a repayment basis.

As long as you compare like for like term wise, a repayment mortgage will always charge less interest than an interest only one, because your aggregate debt is so much larger on the interest only mortgage.