Residential mortgage on Interest Only

Snookie12cat

I am thinking about getting my new house on an interest only mortgage rather than a repayment. 

Would be interesting to see people thoughts on this. A good idea, or not? 

caprikid1

What is your reason ? How do you plan on repaying ?

Whilst interest only is available they are not readily available. 

user1977

As above, it would help if you explained your rationale. It will restrict your options for lenders.

Snookie12cat

I am keen to not tie up all my money in property, so therefore I have the freedom to pay more or simply pay the £150 a month mortgage. 
I guess the plan would be to either come into money which is very likely, pay small amounts off over the mortgage payments year or year or downsize at the end if I don't end up doing either 🤷‍♀️

I like the idea of only being tied into £150 as opposed to £800 a month.

Does limit my lender choices massively, but can still get a 1.1% rate so that's good enough for me 

silvercar

This used to be the norm. People would take out endowment mortgages or expect pension lump sums as a way of paying off the capital. Now with people buying their first homes at a later age, there is the possibility of an inheritance. Worst case is having to sell up and downsize.
Though the latter relies on some decent house price inflation in the decades that you are interest only.
Lenders have become more wary of this and often require a repayment mortgage or at least a hybrid.

We have an offset mortgage and so build up the offset savings account to a point where it will cover the mortgage. We have dipped into the savings pot at various points, though this is effectively borrowing at the very low mortgage rate.

pramsay13

I think you will struggle without a definite method of repaying.
A mortgage company won't be comfortable with maybe coming into money, maybe paying off, or maybe downsizing. They will want definites that can be back up.

Ramouth

One option would be to get a repayment mortgage with the longest term you can. This would give you a compromise between paying off the capital and keeping the payments small.  Because there is no fixed retirement age you might be able to stretch it out considerably.  

This isn’t something I would do personally - I like the security of knowing we will be mortgage free in plenty of time for retirement.

Snookie12cat

silvercar said:

This used to be the norm. People would take out endowment mortgages or expect pension lump sums as a way of paying off the capital. Now with people buying their first homes at a later age, there is the possibility of an inheritance. Worst case is having to sell up and downsize.
Though the latter relies on some decent house price inflation in the decades that you are interest only.
Lenders have become more wary of this and often require a repayment mortgage or at least a hybrid.

We have an offset mortgage and so build up the offset savings account to a point where it will cover the mortgage. We have dipped into the savings pot at various points, though this is effectively borrowing at the very low mortgage rate.

Offset seems the next best thing to interest only actually. I like that! Probably a few more lenders offering that than the two I found that I can get IO through.

zagubov

silvercar said:

This used to be the norm. People would take out endowment mortgages or expect pension lump sums as a way of paying off the capital. Now with people buying their first homes at a later age, there is the possibility of an inheritance. Worst case is having to sell up and downsize.
Though the latter relies on some decent house price inflation in the decades that you are interest only.
Lenders have become more wary of this and often require a repayment mortgage or at least a hybrid.

We have an offset mortgage and so build up the offset savings account to a point where it will cover the mortgage. We have dipped into the savings pot at various points, though this is effectively borrowing at the very low mortgage rate.

We did the same; We're aware that the interest rate is often higher in this kind of a mortgage. The flexibilty was very useful at one point.

In the end we eventually switched to a repayment mortgage with a much better rate of interest so we could pay off the loan before I fully retire.

Switching had its problems- the bank wanted a credit check as we were switching product type even though we were stayng with the same product provider.
 
On the positive side we got a much better interest rate which will have saved us over £30k in the remaining mortgage payments.

It meant we could retire early and work part-time until we pay it off when I reach state pension age.