Interest only or repayment mortgage? So confused!

Twins

Hello all, hoping someone can send me some practical advise that will help me as I'm going out of my mind with worry.

We've had some figures back from our Mortgage broker about our Buy To Let mortgage and our onward Residential purchase, both are on interest only.  I guess I'm old school as we've always had a repayment mortgage and have known that by the end of 25 years the house would be ours.

We still have about 20k mortgage left on this current property but we plan to rent it and buy a new property.  The quotes from the mortgage broker are all on interest only which makes me incredibly nervous.

Aside from the benefits of lower monthly payments, what are the other benefits of having interest only?  I'm just worried that at the end of the term we won't have the extra money to pay off the capital.  

Any benefits of having part repayment/part interest?  

Thank you!

[Deleted User]

Why is the broker under the impression that an interest only mortgage on your main residence is appropriate?  Presumably its not been plucked out of thin air

BTL are usually done interest only to reduce financial exposure if you have void periods between tenants

Thrugelmir

The more profit you make the greater the amount of income tax you pay. Only the interest element of your mortage payment will be tax deductible. Historically the gain from investing in BTL has been capital orientated. Only over more recent decades as interest rate levels fell has income become such an important consideration. 

Twins

Deleted_User said:

Why is the broker under the impression that an interest only mortgage on your main residence is appropriate?  Presumably its not been plucked out of thin air

BTL are usually done interest only to reduce financial exposure if you have void periods between tenants

Hello, I guess he was guided by us saying we wanted to pay as low as premiums as possible so put it all on interest only.  I will ask him for quotes for repayment but I'm worried these will be double the quote making it impossible for us.   
Can you ask for more than 25 years on the BTL mortgage?  I'm wondering if a part interest/part repayment might be better financially?  Very stressed about this now.   Thank you for your help

[Deleted User]

Do interest only on the BTL and repayment on your main residential.  Worry about clearing the debt on your own home before you worry about clearing debt on what is essentially someone else's home.  You can chuck spare money at the BTL once you have taken care of your residential

If you cant afford to have repayment on your residential and int only on your BTL then think carefully if you are making the right decision on your borrowing amounts.  Rates will go up eventually.  If you cant afford it now then you are really going to be screwed when rates go up.  

london21

I will not advice going with interest only if you do not have a strategy to clear the debt at the end of the term. 

Cornucopia

It's slightly disappointing that your Mortgage Broker hasn't been able to discuss these questions with you.   They would be able to take account of your needs and preferences based on a question-answer exchange with you.  

The first, general observation I would make is that Interest Only and Repayment Mortgages do not constitute the black & white, "for all time" distinction that your questions imply.   You can still make capital repayments on an IO mortgage, subject to the Ts & Cs of the deal you sign up to, and you can change the type of mortgage later, again subject to Ts & Cs.  In terms of managing risk and overall improved outcomes, the distinction between Fixed Rate, Tracker, SVR, etc. mortgages are much more significant than the distinction between IO & Repayment IMHO.

In terms of questions prompted by your questions:-

- Why BTL?   What is your objective from having a BTL property?  What is the long-term goal?  How long will you keep the BTL property, and what will happen to it after that time?

- How is your existing (£20k ?) mortgage funded?  Why do you want to change?   Have you considered just asking for permission to Let?  Are you increasing the loan amount in the conversion to BTL?

- How long is your new Residential mortgage?   Is the plan to pay off the capital using proceeds from the sale of the BTL?   What (otherwise) is the logic behind going IO on this property, and is the Broker planning on using a non-mainstream lender to allow you to have IO on a residential property?

It's all a bit mysterious and really it isn't a question of "IO Bad, Repayment Good", but of best match to your needs, preferences and plans.