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Interest only mortgage question

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  • Interest only mortgage question

    2 Questions really:

    1.When we bought our property 4 years ago, the only way we could afford it was with an interest only mortgage. A friend of ours who owns lots of properties said you should only get interest only because someday you downsize, pay the mortgage off, and buy a new property. Well I don't think that's right, because we have a 2 bed flat and probably will never get anything bigger, so we won't be able to downsize! Right? So we have an appointment with the bank next week to discuss changing to a repayment mortgage.

    2. BUT now we're seriously thinking of moving back to America where I'm from and renting our flat out. So I'm thinking we should leave it at the interest only with its low payment, instead of raising it to the repayment one, to ensure that when someone pays us rent, it covers the mortgage, yearly fees, and letting agent fees. Then someday when the market is good, we sell.

    Am I thinking correctly or is this wrong and someday it might not have sold, we'll be too old to change to repayment, and we'll be stuck???

  • #2
    Re: Interest only mortgage question

    Interst only mortgages should not be used for the long term, lets say you borrowed £200,000 over 25 years now when your term is up you have payed back £200,000 in intrest alone but you still owe the origional loan of £200,000 so in effect you are paying back £ 400,000 on a £200,000 loan
    www.tradesmanschoice.co.uk

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    • #3
      Re: Interest only mortgage question

      Hi Plarka

      If you're thinking of moving back to the states and renting out your home, make absolutely sure that the rent you'd recieve (including the extras) would cover the mortgage when the base rate goes up. Also don't forget that youd have to move to a buy to let mortgage.

      Good Luck!
      Free Guides For First Time Buyers!

      www.FirstTimeBuyerGuru.com

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      • #4
        Re: Interest only mortgage question

        You would be better off selling the flat and repaying your interest only loan.

        Your lender would never agree to your renting the property long term with an interest only mortgage anyway.
        BRAND NEW HOMES
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        • #5
          Re: Interest only mortgage question

          So you are renting a home (as you would be if you were a first time buyer) and you are suggesting that the first time buyer buys a property and rents that out rather than live in it?

          Madness.
          BRAND NEW HOMES
          Information for UK new home buyers
          New Home Blog The latest news and views

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          • #6
            Re: Interest only mortgage question

            I agree with you NHE, but I'm sure they realise that. I'm simply responding to the question they asked.
            Free Guides For First Time Buyers!

            www.FirstTimeBuyerGuru.com

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            • #7
              Re: Interest only mortgage question

              Listen im no mortgage expert and i dont claim to be one, but i do no my way around these things and personaly you will be mad to have a long term interest only deal, its basic commonsense, What will you do if, sorry, when interest rates go up? also do consider how much interest you will pay over the course of the loan plus how much of the origional loan is still outstanding, if you add these together you will find it quite scary. With a interest only mortgage you are only paying the interest, you still owe the loan value as well!
              www.tradesmanschoice.co.uk

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              • #8
                Re: Interest only mortgage question

                Trades Master is absolutely right, in which case it really comes down to how much you can buffer yourself against the interest rate rises. You must ensure you own enough capital to ensure the rent (including void periods) always pays the mortgage.
                Free Guides For First Time Buyers!

                www.FirstTimeBuyerGuru.com

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                • #9
                  Re: Interest only mortgage question

                  You should only even be considering this if you are living with your parents virtually rent free. Even then they would probably want you to find a place for yourself before being a landlord.
                  BRAND NEW HOMES
                  Information for UK new home buyers
                  New Home Blog The latest news and views

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                  • #10
                    Everything that people above have said is correct, yes it will be best to stay on an interest only mortgage if you are going to move back to the states, that way your mortgage is covered by rent no matter what. If your lender can't help with an interest only mortgage or won't offer you one, I'd recommend these: https://remortgager.co.uk/interest-only-mortgage, they are interest only mortgage specialists so they know what they're talking about!
                    Remortgager - Remortgage Advice UK

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