Self-Funding Mortgage Concept???

MelG69

Has anyone ever heard of this concept? A friend(?) of mine recently told me how to self-fund my mortgage and have a small income aswell. I am not that savvy, to be frank, and was just curious to hear anyone elses opinions/thoughts/advice. I will try and explain this concept as best I can in an example below:

House value = £100,000
Equity = £50,000
Mortgage = £50,000
Monthly Mortgage Payments approx. £250 based on a 2-year fixed rate interest only mortgage deal.

At the end of the 2-year fixed rate period, based on historic property values, the house should have risen in value by 20% hopefully, therefore re-mortgage your property at that time and take out a £60,000 mortgage. Again, you need to find a 2 year fixed rate interest only mortgage deal where your monthly payments would be around say £300 per month. Then use the additional £10,000 that you have borrowed to not only pay your monthly mortgage for the next two years, but you can also invest it in some kind of savings/income bond and earn interest at the same time.

I was told that based on historic property values, over a 10 year period most properties increase in value by approx. 200%, so based on the concept above at the end of 10 years my property value would be approx. £300,000.

Even though your are increasing the amount borrowed every 2 years you still manage to retain your initial equity in the property, and never really have a mortgage payment as the mortgage self funds itself.

I am not sure if I have explained this concept very well (probably not!), and I'm sure all my numbers are not accurate, but I would be interested to know anyones thoughts or opinions, both good and bad.

Many thanks!

minimike2

I think it sounds rediculous tbh.

Conrad

Where do I sign!!!!

I dont know where to start. Avoid. Dont you think all the smart middle classes would be doing just this if it really was so simple.

And prices do not go up 20% pa.

Geoff13_2

Your problem would be when you come to retire, or want to live mortgage-free. You've basically chipped away at your equity every two years, so although you still retain the original equity in £ terms, in 'real' terms you have diminished it. As house prices have increased you wouldn't have sufficient equity to downsize and pay cash for a new property.

MelG69

Conrad wrote: »

Dont you think all the smart middle classes would be doing just this if it really was so simple.

And prices do not go up 20% pa.

I'm not challenging you honest, but isn't it true that most 'middle class' properties, say £500k+ increase in value at a far greater and quicker rate than those of a lesser value? I have just recently sold two properties, both of which increased in value by approx. 30% in the two short years that I owned them. Both I bought for under £150K.