Paying off a residential Mortgage....a Myth that needs debunking?

Landprofits

Hi guys, firstly a quick hello as I am new here although do post on another section of the board.

I would like to open up a topic on a rather interesting viewpoint regarding residential mortgages. There are those that say you should never repay capital, instead use interest only mortgages. The logic behind this is that over 25 years, the increase in equity and inflation will make the original capital amount aa rather small amount.

I should stress that the instruction is that you should also have investment properties so, that at the end of the term you have investments in place that can pay off the remaining capital.

This is a view that is shared by many well known property investors, amongst them Dominic Farrell (author of Jet to Let).

I would be interested to hear the view of people on this board about this....

Matt

Zammo

Not such a great idea in a "low inflation" environment. Especially at this point in time when prices have begun to drp and could stagnate for years.

Lavendyr

Great idea if house prices go up enough.

Awful idea if they don't.

Running_Horse

Don't care, I've got a repayment mortgage. Interest only on residential is for mugs. Why don't you tell us what you think OP?

Jonbvn

I think you should post this on the mortgage free wannabee board.

IMHO it is a good idea to overpay your mortgage, after you have utilised tax-free savings/investments such as ISA's & pensions. Generally it is very difficult to get an after tax savings rate higher than the average mortgage rate.

Secondly, who says your equity will always increase?

SquatNow

An appalling OP in the current market. In the 80s with 20% inflation it might have been practical... but even then, all your suggesting is "don't pay off the capital, blow it on a holiday".

Spend money rather that pay debts will always be appaling advice.

ManAtHome

Get a balance between housy-stuff, savings and pensions, then you can do what YOU want, not what "the markets" decree...

And why should you have "investment properties" rather than (just) investments to pay the (eventual) bills..?

Alan_M_2

SquatNow wrote: »

An appalling OP in the current market. In the 80s with 20% inflation it might have been practical... but even then, all your suggesting is "don't pay off the capital, blow it on a holiday".

Spend money rather that pay debts will always be appaling advice.

There you go again, putting words and phrases into the OP that aren't there. Feel free to highlight any suggestion of spending or blowing anything in the original text.

The OP is a valid theory in certain market situations, which we're not in right now.

In 1995, the OP would be very sound when used to buy multiple properties and let out, now - 12 years on, some of the equity on those properties could be realised and the capital sum on one or more of your properties paid off in full.

Obviously I don't see this as applying in the current climate.

However you look at it though, it's speculation, not investment, kind of the negative of STR if you will, you're gambling on excessive HPI for a big payday.