Interest-Only Mortgage

cleagarr_2

Hi

Due to very pressing personal circumstances I am about to part exchange my property with a developer - and therefore stretch my7self to afford it at 30% more than the value of my current home. This is only intended as a short term (12 months at most) move.

I am thinking of going for an interest only mortgage for this period to make the payments more affordable. If I do this do I have to set up a savings account-type-thing to save towards the payment of the capital? I don't want to - I'm only 29 so want to use this as stop-gap then move and start paying a repayment mortgage on my next (cheaper) property.

Any advice would be most appreciated!

dwsjarcmcd

Before I answer the question, I would just say that I am sure you are aware that with everything going on in the housing market, your new property is probably going to be worth significantly less than you paid for it in 12 months time. A final point, lenders are reducing the amount they will lend as a percentage of the value of the property, almost on a daily basis. Obviously you have your reasons but you should be aware of this.

Regarding the question of Interest only, you will be asked how you intend to repay the mortgage at the end of the term. You will need to tell your lender how you will do this. They cannot 'force' you to do it, but it makes sence to have some means of repayment, and they will ask the question.

David

cleagarr_2

Hi David

Thanks for the reply - can I clarify; my lender will ask me if I intend to pay off, I'll say yes, they'll no doubt offer me some savings scheme... If I say I've already got one will they accept this? I have no intention of actually setting up such a scheme because I will put the house on the market within 12 months or so anyway.

I'm not sure I'm AS pessimistic as you re. the market but anyway I'm prepared to take a hit if the market drops as its the only way to get ANY of my capital back!!

dwsjarcmcd

Hi cleargarr
Depends on the lender and in todays climate, don't be surprised if more and more insist on seeing evidence, but there will be some where you will just be able to say that you have, or will be getting something.

Some of the brokers who frequent this board will have a better idea than me as to which lender accepts what.

David