mad555

iTrader: (1)

Right currently in a mortgage deal which the fixed rate period is now up.So I was thinking of changing to an interest only mortgage for 2-5 years then changing back to fixed rate,etc.
Is this worth my while,worked it out roughly and would be saving around £300/mth.

TIA

MikeCardiff

iTrader: (2)

If at all possible, dont get an intetrest only mortgage - unless you really need to save the money, then stick with a repayment one where you are actually paying off some of the house.

[Davey]

Interest only is for mugs! Whats the point? You've still got to pay of the equity at the end of the term, you might as well rent and save! lol..

Scooby-Doo

If you invest the cash difference between your repayment mortgage and interest only mortgage each month you will find you have a nice nest egg at the end of the term that you would not have with a repayment. Obviously more risk as you will probably invest in ISA's etc but over 25 years the risk is fairly low.

Mosy repayment mortgages are front loaded with interest so if you leave after only a few years you have paid very little capital off.

Interest only is the way to go if you are organised with your finances.

PeteBrant

If at all possible hold out until the end of the year before you tie into a 2 year deal. There is every likelyhood that the rate will go below 5% by then.


At that point I would be tempted with a long term fixed rate mortgage.

fast bloke

Please do explain - Do you mean than lenders are capitalising interest before it accrues, or merely that in the early years, you pay more interest than you do capital, but the payments are averaged over the term. This is known as amortization....... not front loading

Scooby-Doo

Amortization it is then

fast bloke

very different scenario - front loading it what you might get with car finance. You borrow 20k, they add on 4k interest and you pay 48 payments of 500, with the balance being reduced by 500 a month throughout the term.
With a mortgage, you borrow 20k (ha ha) at the end of a month they add on the interest and you make a payment, which clears the interest and a bit of the capital - next month, the loan is slightly smaller, so they add less interest, you make the same payment and the capital is reduced by slightly more than last month. Any repayment mortgage allowing for slight variations in daily/monthly or annual rest, whether you leave or not after a few years should have a broadly similar balance after any given period of time. (Barring ocean finance)

Brendan Hughes

You should sell and rent your house. The market is about to crash.

(c) NSR 2000-2008 and counting.

EddScott

Well actually no.

If you rent the house isn't yours and you also pay more renting than you would Int only. If you use interest only at least the house and any appreciation is yours. Its like renting but you benefit from appreciation (or not as the case may be)

We bought our house 8 years ago. We had one income of £11K and our daughter was due in October. I just lost my license and needed a place for my new family and in walking distance to my work or I lose my job too.

The house was £53K, the company selling them paid everything. I put a deposit on our house of £99!! They paid the 5% so we just had to get a 95% LTV on 48K ish.

Only reason we got the mortgage was we had a good working relationship with the manager of the local C&G and he knew we would afford the mortgage even if my wages didn't stand up. It had to be interest only because we couldn't afford it otherwise.

I've taken a bit out for improvements etc and we are on repayment now and to be honest I owe more now (55K). But then the house is now worth £160K.

So yes, we've effectively rented for 8 years and owe more than we started with but we have a shed load of equity which is ours rather than someone elses.

Ours is due soon and I'm going either tracker or disc variable. Assuming nothing unexpected happens I reckon we're on for 5% by the end of the year. No uber crash IMO. Inflation will rise though.

Scooby-Doo

I'm sure you are correct but years ago L&G tried to completely butt **** me with their repayment mortgage and after going through the details I would have paid no capital off in the first 7 years. In addition to that the financial adviser got £25 per month for 25 years for his advise. If I moved company I had to pay him in full !!!!!

Jimpreza

Top post Ed. Makes a change to people ***** waving that they earn £5000 per week and only owe £20 on their mortgage.

Dunk

iTrader: (1)

My fixed rate (4.56%) is finishing and am also teasing out the options. I want to release some capital but maintain my monthly payments, so I'll end up doing a 75% repayment and 25% int only, knowing that settling the capital on int only won't be a problem in 5+yrs time.
I'll leap into a new fixed rate on either a 5 or 10 yr term as soon as the rate drops below 5%, my worry is that the base rate cuts won't lead to reducing fixed rate deals as LIBOR will dictate the market not the base rate.

D

fast bloke

I think you may have got the wrong end of the stick on several points, but the first is that if you are only paying interest, this would be termed an interest only mortgage. If you are not repaying any of the capital, then you are only paying the interest, so the scenario you describe above isn't possible. Second is that FA's don't get paid an ongoing fee for mortgages. He may have been paid a commission for arranging an endowment, which could be the equivalent of £25.00 per month for 25 years, but only if your monthly premium on the endowment was about £600.00 a month. You must also have signed a fee waiver, so that you would have to repay and commission clawback he suffered. However, you can maintain an endowment with an insurance company while 'rate tarting' your borrowing around the place with no clawback. To be totally honest, it sounds like the guy didn't explain it or you didn't understand.

At this point I think you should edit your first post to reflect this

Scooby-Doo

I'm sure I can dig the original contract and terms out unless I've shredded them at some point. I phoned Legal and General and they confirmed exactly what I have described. After 7 years I would have paid next to no capital as all the early payments were covering interest and yes they also confirmed the advisers fees. They even had the gaul to say they get away with it as no one (except me) reads the small print.

This was 9 years ago so I'm sure the regulations have changed but if I ever get a mortgage again I will be sure to read the small print.

john banks

After 7 years on 25 year mortgage at 8% with amortization you'll have only paid 10% of the loan amount anyway.

Really? Not at present. I pay £875 rent per month on a house worth about £400k. Interest only on that would be £2167 per month at 6.5%. It isn't your house until you have the title deeds.

Moley

iTrader: (9)

It all depends on your circumstances.

For me, i am payed commission only (no basic at all), so i never know what my paycheck will be next month. (Most self employed people will be in a similar position i guess).

I will be looking for a mortgage later this year, and will be doing interest only.
That way if i have a bad month i will always be able to make my re-payment, and if i have a good month i can put extra money away.

The plan is (for example) get a £200k mortgage on interest only, and put away at least £400-£500 per month (more if i can afford it). At the end of the term (2-5 years, whichever i do) i'll put that money into the house, and re-mortgage on the lower figure, and with a bit of luck the value of the property would have risen aswell.

I know this would be considered far from ideal for a lot of people, but for my particular situation i feel it would suit me best.

Petem95

Might be even less, but mortgage rates might not be much lower in the current financial crisis!

Nationwide raises its tracker rate | This is Money

chocolate_o_brian

iTrader: (22)

for the record, me and the mrs are combined, about 34k a year between us, mortgage of 86k now. with everything else we struggle sometimes, but i personally wouldnt go the interest only option, unless like edd above were desperate and expecting a family addition.

my ideas as im 23 and shes 21 are to sort the house out first, save up for a reasonable wedding, then have a family. if were 35 when thats happens... so be it.

no ***** waving from me