to be surprised by the number of friends on interest only mortgages?

[mrsnw]

We are thinking of moving next year so conversation has turned towards interest rates and mortgages. We live a an affulent area of Herts and many people hold down good jobs. I know everyone situation is different and many of the mums are SAHM. Just guess am suprised. Oh and would you move giving the state of the eco??

Hi chipping
I'm not sure yet if it would be, I'm just trying to mull a few thoughts over.
We live in a very modest house worth about 100k and we have approx 95% equity.
We want to buy a new house and may be able to get enough money together for a deposit without having to sell our current house. I am thinking maybe we could get the new house on IO and then rent our current house out as a long term 'endownment' option. The monthly rent would more than cover our current mortgage and leave us with an income to invest/overpay our new mortgage and we would still have the house to sell in 10/20 years.

Does that sound viable to you?

Thanks for a very informative thread... I am really learning lots about IO mortgages. Before this I did not understand the use of them.

Nezzi - you need to speak to a mortgage adviser - you'd have to prove enough of your own income to cover both mortgages - or change the 1st one to a buy to let. Most lenders now want a much bigger amount of equity for BTL - nearer 75% or more.

You should not assume the debt with be deflated away, nor should you assume house prices will rise over a 20+ year period. Take a look at Japan. After the real estate and credit crash of the last 80s early 90s they have been in a recession with deflation for 20 years. Debt has got bigger, house prices have stagnated.

Sure, but you will see what's happening over the next 10 years, so you can make a plan. A Repayment isn't a much better bet in the 1st 10 years as typically only 25% of the debt is paid in the 1st 10 years.

SexyDD
Our current mortgage is only 60 pounds and we would be able to afford the 2 mortgages together. We already have 95% equity in our current house.
I'm going to try to speak to an advisor today.

SDD - they already have 90% equity in the house and most banks will take rental income into consideration.

Nezzi - I think it's a good idea, but there are a few things I'd do if I was going to do it.

• I would fix the interest rate on the new house for a minimum of 10 years, but preferably for the life of the mtge if anyone's offering it. Interests rates may fall, but they haven't got far left to fall really - they have a hell of a long way they could shoot up!

• I wouldn't stretch myself to pay the IO on the new house because with an IO you don't have the option of going down to an IO - you are there already! so if things go arse up there's no wriggle room (one or both of you lose your jobs for example) - you don't have to make this move, you could stay where you are so I'd only do it within certain comfort levels.

• I would look at the rent as something, that first and foremost, pays the bills on the old house, maintenance, any periods where there aren't tennants etc I would work out how much it's costing and I'd let the rental income excess build up until it reached enough to cover at least 6 months before I used it to pay anything off of the mtge on the new house.

Just a few of my thoughts :)

oops miss read the equity as the other way! So it means about £5k as outstanding. If I was in that situation would be more likely to pay off the 1st mortgage completely - then rent it out for an income.

Long term fixed rates have fallen and if needed a new mortgage that's what I'd take. Personally I'd look at doing a split IO and repayment but depends on your circumstances.

My head is starting to hurt with all the ifs buts and maybes but thank you for the advice.
Yes SDD, paying off the current mortgage (6 or so thousand) is definitely a consideration.
The new IO mortgage wouldn't be a stretch Chipping, I wouldn't be comfortable if it was. I agree that fixing the rate, long term is a good idea, that way we can see how the housing market is and then maybe re-mortgage or sell or pay off a lump sum or, or or....
Imponderables

SDD,

part IO and part repayment, even more

I wouldn't do part & part - I can't see the advantage? Just get an IO with an uncapped repayment facility - that way you are in control. You can overpay when you want to and pay IO when you want to.

I also said in my post that was eaten by the laptop (grrr) that I would pay the first mortgage off and not faff about with the bank re needing to change it to a buy to let etc (even though as it's so low they probably wouldn't bother - you still have to faff about discussing it). You'll have a little less of a deposit but more equity & be mortgage free on your first property which will both go in your favour when they're looking at your new mortgage.

Ponder away

Pondering.....

you don't have to go for one or the other. We have a split mortgage with about 80% repayment and 20% interest only. We are overpaying a bit, and that comes straight off the interest only. The reason we did that was that we had to rent out for the first year we owned the house, and it is sensible to off set the rent against interest payments. We also have old endownments in place to pay off that element. I may inherit a bit from my Dad, but very aware of the costs of care, and the fact that he is only 70 and could go on for years! If we inherit anything it will be a bonus - but would go straight towards paying off (our horrific) mortgage.

Nezzi - another option would be to fully remortgage the property you have now, do it as a buy to let, interest only (if you can get it), keep your equity as low as possible. Offset the interest & the rent, paying less tax. Use the old equity to increase your deposit on the new house. It's a messier but more tax efficient way to do it.

ChippingInAutumnLover
FredFredGeorge - why would you rent when rent is more expensive than a IO mtge?

Remember my first statement was if you believe house prices were going to fall - the problem with renting the money if the asset you buy with the money ends up being worth less than the money you've rented, and then you either end up bankrupt or lose other savings/investments and your original deposit.

If you don't believe houses with fall, then as has been said, the risk of renting may be worth it.

I do believe prices will fall
I keep my mortgage below what I believe they will fall to
and that is after putting a huge extension on my house rather than move in late 2007 .....

Nezzi
you are best to sit down with a GOOD IFA who will be able to give you personally the right advice
but this thread has given a reasonable grounding

i've always thpught io morgages were a joke, and counldn't understand why people would have one, except in times of real hardship such as jobloss or illness.

but i can actually see how they can work, if your smart about it.

but as im risk averse i'll stick to repayments and overpaysment, although i often wonder if we would losen the purse string rather than pay 200 quid over and about our repaymnet morgage everymonth

Carrie
if you are on 100% repayment at a decent rate there is comparatively little to gain from the overpayments, especially as little as £200
I set aside £2000 a month averaged across the year
BUY that bottle of wine :-)

well overpaying 200 pounds extra a month is supposed to ssave us loads in the long term......
and mean we pay the morgage off early....

although an extra 200 a month 2400 a year to spend/enjoy would be nice

you will save money and pay it off earlier
it all depends on percentages
I have a very (numbers geek) detailed spreadsheet that shows me EXACTLY how much I save
actually, my google spreadsheet might be able to cope with your numbers - have a play
docs.google.com/spreadsheet/ccc?key=0AiZqlQ7-gn07dHRoTXA5Qnlld25UWkw1TEhZZk9IYVE&authkey=CMjc4JEB&hl=en_US#gid=0

Part IO and part repay as we have an endowment which although under performing will pay the IO part off. Repayment covers the additional mortgages we've taken out due to house moves. Can do monthly over pay plus a yearly overpay of 10%. Then in a few months have some choices on how to set up the IO and repayment for the rest of the term.

woollyideas Hmm. I know of five people who have had their houses up for sale for over a year. If they'd gone down the interest only option their banks would have repossessed them by now as when the payment due date is hit, the bank want their money.

Ok, most people wouldn't leave it till the last minute, but it seems to me (as one who went down the repayment route which worked perfectly) a strange way of having a house.

almostfifty it might be strange to some. if you earn averageish earnings then yes, it may not be the best. If you don't and have stocks, shares and large annual bonus, it makes perfect sense.

Good for you and your 'route', almostfifty. Did you actually READ my post about why I decided IO was the way for me? Do you think I wouldn't have 'chosen' a repayment mortgage if I could afford one?

To reiterate, my choice was paying a significant amount more on a repayment mortgage (not affordable), paying a significant amount more to line a private landlord's pockets (not affordable), or going for IO and building up some equity.

So sorry you don't approve...

Woolly - stress not matey. You made an informed decision, with all the facts and your wits about you. It was a good decision. Don't let anyone make you feel bad about it. Some people's lives run to plan and they're never pushed into making 'the best' of the hand they're given. Sometimes they don't appreciate that a little luck has also got them where they are (luck as in not having a failed relationship or something along the way).