Ginge !

ok this sounds wierd but i aont got a clue about morgages, i just get my pearl pention advisor tell me whos the best to go with for my needs and sign a form


got a mate whos saying he cant afford to buy a place and also cant afford rent so hes getting a 25 year interest only morgage and that all he pays is the interest on the morgage on the property and in 25 years he just gives the place back to the owner


is this bollox as it sounds like fucking renting to me but he said its different as its alot cheeper so he can get a nice flat for council rent money



anyhone here confirm hes lying and just about to rent a flat but claim hes one better than the others

Shings

Its ok if the property makes money

BUT

its not as simple as glorified renting as you need to take out a savings plan/endowment ploicy to pay off the capital as you're still actually buying the property- as far as I know you cant just have one with no way of paying it off at 25years as you're supposed to do that..

As said for short term say 10 years.. while the property makes money its fine, then sell and move to a bigger place with your capital from the sale and have a proper re payment mortgage

Jake

Ginge !

but at 5% interest surley its better then ?


but who buys the property as such ????



the idea of living in a 500k house and paying 5% interest must be a good idea aint it


actually,,,,,, 5% a year,,,,, that aint gonna work out better off


hes looking at a apartment in southwark and recons hes gonna have a bactolar pad for fuck all

Mark 3D

iTrader: (29)

I have an interest only mortgage tied to an ISA.

Example:

Say i was on a repayment mortgage paying Ł1200 a month well Ł1000 of that would probably be interest while Ł200 would actually be taken off the mortgage.

If i pay Ł1200 per month then Ł1000 is interest and Ł200 goes into my Isa earning interest.. however it works (its a share ISA scheme)

anyway the long and short of it is that if my ISA does well then hopefully my ISA will make enough dosh to pay for the house in 17 years rather than the standard 25 years for a repayment type mortgage.

Ginge !

i cant even get a endowment plan

when did you last get a morgage shings, ive had one for 4 years i think and got told there not worth going for so not to bother


im currantly looking at 70% buy/30% rent at the moment as i dont wanna get a bigger morgage until my missus us back at work and the place where looking at is quite a bit more than we have right now

pacificzetecturbo

iTrader: (1)

I've got an interest only mortgage, you own the property as in your name on the deeds so not sure where he gets the idea he can give it back to someone, like said its ok short term but not long term, the only reason i done it this way was to reduce monthly payments with a view the circumstances will be probabley be a bit better in the future so i'll get a repayment one then.

Shings

Basically

the property he buys will go up in value... for example

I know the figures aint right but as an idea...

He has 100k interest only- payments are 400 quid a month.
For that its his house, he does what he wants blah blah blah.
Plus 100 quid a month in endowment policy

10 years time its worth 120k so he sells as his accident with a hoe in the batchelor bad results in little Johny and with Little Johnnys sister on the way they need a new gaff.

So he sell.. he now has 20k capital in the house and 12k (+ interest) in the bank as endowment hence 32k

A nice deposit on somet else which he can then do a repayment mortgage on.

You get it

Now... a repayment mortgage on that property would prob be another few hundred quid a month... so when he sells after 10 years he's spent more money but not gained anything else as he wont of paid anything worthwhile off his house + he wont have the endowment policy either.

Also- try saving 32k over 10 years.. you have to be fuckin good at saving and keep to it and not dip into it...

Makes sense in my opinion- but only if you're gonna move on and its a short term investment..

Ginge !

oh cool


see i should have learned stuff like this when i got on the market


i just asked the financial advisor who sees me each year about my pension to get me to pay more cash and take his advice,,,,, but to be fair he has been doing my pension since i was 16 and 11 years later hes still doing it for me


and i do have a morgage thats less than a weeks wage

Anonymous

I have an interest only mortgage.

Since i bought my place its gone up in value 50K, i still owe the same on it as when i bought it, so ive made the 50K.


So you buy a place for 200k @ 5% interest, it means you pay 10 grand a year in interest.

You ALWAYS owe that 200K, but if in 25 years time the property is worth 2 million then you still owe 200K against it, so when you sell it you get 1.8 million and the bank get back their 200K


I know those numbers sound silly, but based on the last 25 years they are actually conservative to think it will only be worth 10fold!

Ginge !

so i still dont get this though

whats the benifit from this over a normal morgage then ???


as i guess you still get vetted the same as a 200k morgage


sorry but its confusing me more now


ive got a normal morgage, i borrowed 67k at 6% i think and i pay that back, i sell my place now and then i pay back the balance i owe and buy another 70% place on a rent/buy place with the idea that i get a few loans out for 10% stakes when we are better for cash


would this be a idea for me to look at instead ?



my old man had a endowment morgage that ran along side his morgage, he then got told it never made much cash blah blah and he should claim against his bank for it but at the end of the day his place has gone up soo much hes not gonna loose

the only thing about his is he cant pay more on his morgage as hes just retired and still has to pay the last 3 years morgage hes got even though hes got the cash in the bank for some reason


sorry but i dont pay attention to money situations and i never like asking people who i dont know 1 on 1 as i fear im just gonna get sold something i dont need

Ginge !

yeah and when i do that can i do it at the same starting value and not the current one


the nearest i got to what i thought was a interest only morgage was when i was unemployed for 6 months and the government wouldnt pay my morgage so instead they offered to contact the bank and change my morgage so i had nothing to pay and they pay the interest until i get a job


but then the bank mentioned that after 25 years has expired i have to pay back what even time gap i had when i had no job in full at that point, meaning that after 25 years i would have had to pay back 6 months morgage payment on top


so i just payed it

Dan B

I'm starting to look at buying a house, but have absolutely no idea where to start with looking for a mortgage! Do you just walk into a bank/building-society, and say "hi, I'd like a mortgage, please"?

Plus, with house-prices on the up-and-up, I have a feeling going for a house on my own will result in a cardboard box with windows being the only thing I'll be able to afford!

Anonymous

The benefit is you arent repaying what you borrowed, merely paying the interest on it.
So its cheaper.

So:

borrow 200K pay 1000 a month and at end of 25 years you have a house worth 2 million and you owe nothing (NORMAL MORTGAGE)

borrow 200K pay 800 a month and at end of 25 years you have a house worth 2 million and you owe 200K still (INTEREST ONLY MORTGAGE)


Thats VERY over simplified of course as lots of different types of "normal" mortgage, but thats the basic difference.

Ginge !

cool, cheers chip that does explain alot

Clare

Interest Only mortgages are only suitable for a period of 2 - 5 years, just to effectively see you through the high interest rates there currently are. Any longer than this you are throwing good money after bad. If you keep your interest only mortgage for the full 25+ year period, you will get to the end of it and still owe the full market value (at the time of purchase) of the property, which is pointless unless you've made some other financial plan to pay this off in a lump sum.

Basically an Interest Only mortgage is designed to get you a foot on the property ladder, most people keep it for the initial 2 year tie in period then swap to repayment, when effectively the idea is that you are more financially sound after this period of time.

If you can afford a reypayment mortgage on the property you want, it is always the best option, but dont look at an interest only mortgage as being the way forward for the nest 25+ years.

HOT RGB

Im a mortgage advisor and have an interest only mortgage, not bothered about 25 years time yet, rather have ŁŁŁ in my pocket now for me and family. As 25 years time will no doubt sell house and move down market, when kids have left & pay off capital then. A Ł TODAY IS NOT A Ł IN 25 YEARS TIME. (ask your parents what they bought there first house for!)

I wouldnt advise interest only for everyone though, just me personally as everyones needs / objectives in life are different.

Rich

dojj

iTrader: (3)

yup, just walk in and see the mortgage advisor

as for intrest only mortgages, here's my view n matters

intrest only repayments came to just under Ł700 all in
full repayments came closer to Ł1400
the problem now is that if we had to sell the property before we paid off the mortgage we'd be stuck with having to sell the house and not hav anything to show for it because we'd only be paying the intrest off
as we are paying the mortgage as a full repayment, if we were to sel the house we'd get a little bit of money back before we paid off the mortgage

the other thing you need to think about is the fees the would levy if you paid the mortgage back in one lump sum

more complicated that it sounds, and everyone is basing their onions on the fact that you would be living in the property for the full duration of the mortgage

MWF

Totally amazes me how often I'm reading comments lately like "I don't know anything about mortgages" from people who are home owners. Just begs belief.

MWF

But it's tens of thousands of pounds of your own money involved. You can learn the ins and outs of mortgages in an afternoon it's hardly rocket science.

Thrush

iTrader: (1)

I must admit, thi thread has given me food for thought....

I am looking to buy property within the next year - and since I am a single male and want to buy on my own, and don't earn bucket loads, I am limited in what ammount I can borrow. So far, with the few preliminary enquiries made, I might be good to borrow Ł110-Ł120k...

So I ain't gonna be getting a nice 2 bed semi for that, so I have kinda realised that unless I can get a 50% part rent part buy (good news yesterday, my local housing association for my borough has accepted me as a candidate ) I am probably looking at a <Ł100k 1 bed flat.....

So since I don't really want this, as I want a house, it might be worth me looking at interest only mortgage on it, stay for 2-5yrs, and hope that the property makes money, then buy the house I want that costs more with the equity I have made, then settle into repayment.....

Does this make sense?

Andy_R

iTrader: (3)

I have to laugh at the 25 years mentality, highly unlikely that many users on this forum will repay their current mortgage over a 25 year period.

You move, you remortgage.

Your discounted rate is up, you remortgage.

Your personal circumstances change (move to bigger house etc), you remortgage.

At any of the above points in time the lender & term are more than likely to be changed, making an arse of the 25 year concept.

Lender's will not come hunting for you, demanding repayment, just because 25 years have elapsed since the comencement date of a Mortgage. The longer your paying interest to them the better from their point of view.

With the right property and the right investment strategy 'Interest Only Mortgages' can arguably be made to work better than Capital/Interest(Repayment).

MikeR

Some differing veiws here,

am currently looking for a property to buy to let have found a location that i beleive works in mine and my partners faour i.e higher rent then morgage, now i am looking at this as my retirement fund, and have worked on capping the morgage to 22 years, i will make more money each year it is the nature of my job but they have told me i need a 15% deposit to buy to let then of we go, he straight away mentioned interest only morgages but i said i wanted to own it out right no dramas that the retirement fund attitude,

Am i being naive or looking at this wrong ?

Cheers Mike

Andy_R

iTrader: (3)

Mike most Self Cert and Buy to Let mortgages do require at least 15% deposit.

If you were to look at statistics relating to the rise in UK property values you'll find that historicaly at around the 6 year mark property doubles in value.

By using an Interest only mortgage to keep the costs low (in terms of monthly outgoings), whilst steadily increasing your portfolio (propertys mortgaged & generating rent) its easy to follow the following. (Bad English that )

Ł100k property. Ł15k deposit, interest on Ł85k mortgage interest only circa Ł350per callender month (Ł500ish repayment).

Assuming the property doubles in value over a 6-7 year period you now have the same Ł85k mortgage on property valued at Ł200k

In effect you have invested Ł4200 per year in interest payments X 6year=(Ł25,200) or X 7 (Ł29,400).

So off the back of the Ł85k loan before throwing rental income into the mix youd have made Ł60- Ł75k. By adding propertys to your portfolio, which can be done with little to no further initial outlays & all costs covered, its easy to see how, when compounded, you can make money with borrowed money.

Anonymous

Andy, providing you are in a market where the general trend continues to be prices going upwards, your arguments are all flawless.

And i cant ever see in the long term that not being the case in the uk

Andy_R

iTrader: (3)

Whooops I made an arse of the math.... lol amended!

Anonymous

The actual numbers dont matter, its the basic principle that it cheaply allows you to make an investment that you otherwise couldnt afford to.

Simplest way to look at it IMHO is base on what you can afford a month.


In the town i live in 25 years ago you could (roughly) get a 3 bed semi for 20k and a 4 bed detached for 30k

Now they are now 200 and 300k respectively.


Interest only mortgage versus repayment will work out to a similar monthly outgoing on both those houses IIRC.


So which would you have sooner bought, the 20k one and now you own 200K of a 200K house, or spent the SAME amount of money for the last 25 years and you own 270K of a 300K house, you've lived in a nicer house for the last 25 years and if you are bothered by not owning the whole think now you can move down the smaller one, pocket 70K in cash as a bonus and still have had the larger house for the whole time you were raising a family and needed the space.

Anonymous

PS

with regards to the fact that interest only mortgages are quoted over 25 years, its in order to allow them to come up with an APR

Its actually impossible to quote an APR for a loan without a duration of the loan unless there are NO fees involved for the loan

Andy_R

iTrader: (3)

Chip I guess experience and past success stories or scare stories is what ultimately determines ones choice when it comes to making decisions.

Even more so when it comes to the decision on how to go about the biggest purchase one is likely to make(not really a purchase more a getting into debt decision) you catch my drift though!

IMO the whole media frenzy associated with the mis-selling of Endowments has caused many to view Interest only mortgages with a negetive slant.

Unfortunatley a lot of people still associate Interest only Mortgages with Endowments and automaticaly steer clear of them.

Whilst I do appreciate that Interest only Mortgages arent for everyone, I do feel that the advantages have been played down. Mainly by lenders who stand to make more money from the customer where a repayment mortgage is selected.

Anyhow enough waffle, I'll be on my high horse giving my opinion about how the whole mis-selling of Endowments is a farce before long.........ooops I just did

dojj

iTrader: (3)

again, this is assuming you can keep on making the payments for the whole 25 years

if mike were to go ahead and do the thing he's thining of doing then it's all very well as long as there is someone to pay the rent
as soon as there ins't, or he has to make big payments to cover the costs of repairs etc then the whole thing starts to look decidedly less intresting

i know, been there, done that myself and have a whole family who have done similar things in the past

what happens if you split from your partner? who would keep on paying the bills?

there is an absolute minefelid out there as far as this sort of business is concenred and unles you go in there with a head full of knowledge, you can potentially be looking at spending all your money and not having anything to show for it in 25 years

2 examples:

i bought a house last year
mortgage on it was around about the Ł1100 mark
my brother and 2 of his friends were going to move in and the rent was going to pay most of the mortgage with him and me spliting the rest
it turned out that only one guy moved in and he left after 6 weeks, so the Ł2k we spent doing up both room and carpets and all the other shit was money down the drain, we should have left it as a tip with bare walls and been done with it
we've now got another tennant but it's been a year with no money coming in

my dad and 2 of his brothers bought a house way back in 1978 for Ł15k, they put in Ł5k each and after a few weeks my old man needed the money to buy the house we currently live in so he sold his share out
my 2 uncles then decided that they would split the house top and bottom so they got a vaulation put on to it as speerates and they split the cost between them (the priceiery downstairs against the less well off upstairs)
all was well until it was time to sell up
the difference back in 1987 was Ł2.5k, the difference in 1997 was Ł80k
now one uncle wanted Ł40k not the Ł1250 he was given
cue loads of hassle and spliting of the family

Anonymous

Andy, indeed mate, but obviously the reality is there is a BIG difference between some poor sod ending up unable to pay for their house with their endowment at the end of a 25 year stintof paying what should be enough to cover it, and you knowingly entering into a mortgage not paying anything off the capital and making your own arrangements.

dojj

iTrader: (3)

thats the point chip, if people are wlking in thinking that bricks and mortar are the garanteed investment forsaking all others and prices WILL go up at the rate they are going things are going to become a bit silly
what happens when you have poeple who get mortgages of 6 times their annual slarlies and then get repossed?
or, even worse, if the intrest rates go through the foor again?
when there is no one left to buy houses at the prices they are currently selling for, the prices will have to come down, or else no one is going to be able to afford to "buy" and will have to "rent"

Anonymous

Inflation in this country has always been a positive number as a trend, so over time wages always go up, and so will house prices.

Yes there may be a slump or two along the way where house prices drop by a big chunk, but overall the trend is upwards.

Seems highly unlikely that will change in our lifetime TBH