Benefits of interest only mortgage?

Billy_B_North

Deleted_User said:

Densol said:

Years ago - pre the financial crash which triggered new mortgage rules on affordability checks et , many people took out massive ( then ) interest only mortgages on a self certify ( just tell them your income yourself) as long as you had a 20% deposit...... you could basically borrow what you liked. At that time lenders had their 20% buffer so they were protected. 

This gamble paid off for some, but for others it was one of the main causes of the Northern Rock crash - and hence all that was stopped. 

I was one of those people whose big gamble paid off. As a single mum, I could NEVER have bought the house I am in today without it. In Greater London, houses were going up and up so my equity was getting bigger.

After 10 years of interest only, I converted it to a capital repayment but paying it off means my kids are going to pay 40% inheritance tax on the part over the limit. 

I really wish those mortgages were still available, as I would be in a house worth a couple of million now and just pay the interest ( and maybe the odd overpayment ) and then when I die, my kids would share the equity Id already built up before, plus increase in value. 

But alas they are not  
Hope that gives another perspective on things  

Thank you, it certainly provides perspective! Yes, it would definitely be a great option, if it was still available. Having looked into it, it doesn't seem to even be a possibility at my salary level so that makes the decision easier! Capital repayment it is...if I bag the house that is!

I’ve three different mortgages (unusual set of circumstances, not relevant here), two residential, one BTL, and all are interest only, and were taken out last year.
I’m an additional-rate taxpayer, so eligible for the HSBC ones. Next best option if you aren’t able to get interest-only is to take as long a term as you can with a provider that allows overpayments.

[Deleted User]

Billy_B_North said:

Deleted_User said:

Densol said:

Years ago - pre the financial crash which triggered new mortgage rules on affordability checks et , many people took out massive ( then ) interest only mortgages on a self certify ( just tell them your income yourself) as long as you had a 20% deposit...... you could basically borrow what you liked. At that time lenders had their 20% buffer so they were protected. 

This gamble paid off for some, but for others it was one of the main causes of the Northern Rock crash - and hence all that was stopped. 

I was one of those people whose big gamble paid off. As a single mum, I could NEVER have bought the house I am in today without it. In Greater London, houses were going up and up so my equity was getting bigger.

After 10 years of interest only, I converted it to a capital repayment but paying it off means my kids are going to pay 40% inheritance tax on the part over the limit. 

I really wish those mortgages were still available, as I would be in a house worth a couple of million now and just pay the interest ( and maybe the odd overpayment ) and then when I die, my kids would share the equity Id already built up before, plus increase in value. 

But alas they are not  
Hope that gives another perspective on things  

Thank you, it certainly provides perspective! Yes, it would definitely be a great option, if it was still available. Having looked into it, it doesn't seem to even be a possibility at my salary level so that makes the decision easier! Capital repayment it is...if I bag the house that is!

I’ve three different mortgages (unusual set of circumstances, not relevant here), two residential, one BTL, and all are interest only, and were taken out last year.
I’m an additional-rate taxpayer, so eligible for the HSBC ones. Next best option if you aren’t able to get interest-only is to take as long a term as you can with a provider that allows overpayments.

Thank you Billy. HSBC is actually my preferred option - they allow 10% overpayment and seem to have the lowest interest rates. May I ask why you suggest taking as long term as I can? 

longtimelurker2020

@Deleted_User speaking from my personal experience, First Direct allows unlimited overpayments.

You’re not limited to 10% like many other lenders, though you’d be subject to an early repayment charge if you over zealously overpay to the point of paying off your mortgage during a fixed term.

They are part of the HSBC Group and don’t use intermediaries (brokers) so if you wanted to use them you’d have to apply directly. 

Billy_B_North

Deleted_User said:

Billy_B_North said:

Deleted_User said:

Densol said:

Years ago - pre the financial crash which triggered new mortgage rules on affordability checks et , many people took out massive ( then ) interest only mortgages on a self certify ( just tell them your income yourself) as long as you had a 20% deposit...... you could basically borrow what you liked. At that time lenders had their 20% buffer so they were protected. 

This gamble paid off for some, but for others it was one of the main causes of the Northern Rock crash - and hence all that was stopped. 

I was one of those people whose big gamble paid off. As a single mum, I could NEVER have bought the house I am in today without it. In Greater London, houses were going up and up so my equity was getting bigger.

After 10 years of interest only, I converted it to a capital repayment but paying it off means my kids are going to pay 40% inheritance tax on the part over the limit. 

I really wish those mortgages were still available, as I would be in a house worth a couple of million now and just pay the interest ( and maybe the odd overpayment ) and then when I die, my kids would share the equity Id already built up before, plus increase in value. 

But alas they are not  
Hope that gives another perspective on things  

Thank you, it certainly provides perspective! Yes, it would definitely be a great option, if it was still available. Having looked into it, it doesn't seem to even be a possibility at my salary level so that makes the decision easier! Capital repayment it is...if I bag the house that is!

I’ve three different mortgages (unusual set of circumstances, not relevant here), two residential, one BTL, and all are interest only, and were taken out last year.
I’m an additional-rate taxpayer, so eligible for the HSBC ones. Next best option if you aren’t able to get interest-only is to take as long a term as you can with a provider that allows overpayments.

Thank you Billy. HSBC is actually my preferred option - they allow 10% overpayment and seem to have the lowest interest rates. May I ask why you suggest taking as long term as I can? 

Because this is the way to get as close to an interest-only mortgage as possible. It gives you the lowest monthly payments which you can then choose to increase by making overpayments.

getmore4less

You can also go down the offset route with one of the lenders that operate them on an interest only basis like first direct.

Criteria can be tight for those as well.

MovingForwards

I'm not sure you would meet criteria based on property price for an IO mortgage, also they tend to be available to those on higher incomes.

As someone else said, go for the maximum mortgage term and overpay it, that naturally brings the term back down. Most lenders allow 10% overpayments each year while in a fixed rate. If you stick with the entire longer term and not make overpayments then you'll pay more interest.

[Deleted User]

longtimelurker2020 said:

@Deleted_User speaking from my personal experience, First Direct allows unlimited overpayments.

You’re not limited to 10% like many other lenders, though you’d be subject to an early repayment charge if you over zealously overpay to the point of paying off your mortgage during a fixed term.

They are part of the HSBC Group and don’t use intermediaries (brokers) so if you wanted to use them you’d have to apply directly. 

Thank you! That's great, I will definitely look into First Direct.

zagubov

We had an offset interest-only mortgage with First Direct.

They are, to put it mildly, extremely methodical when they assess your eligibility so you need to be patient.
 
If you later switch to a repayment product with them, expect another credit check.

getmore4less

zagubov said:

We had an offset interest-only mortgage with First Direct.

They are, to put it mildly, extremely methodical when they assess your eligibility so you need to be patient.
 
If you later switch to a repayment product with them, expect another credit check.

Have you seen their recent rates for offsets?
https://mortgages.firstdirect.com/mortgage-rates-fees/list-rates

all >3%

zagubov

getmore4less said:

zagubov said:

We had an offset interest-only mortgage with First Direct.

They are, to put it mildly, extremely methodical when they assess your eligibility so you need to be patient.
 
If you later switch to a repayment product with them, expect another credit check.

Have you seen their recent rates for offsets?
https://mortgages.firstdirect.com/mortgage-rates-fees/list-rates

all >3%

They were a lot better than that back in the day.

We'd wondered if they wanted to continue with them as they're not such an easy product to find any more (compared with repayment ones).

Incidentally they have retention mortgages with better rates that aren't accessible to non-current borrowers.