Can anyone settle this argument between DH and I?

[Fluffycloudland77]

Our landlord wants to sell the house we are in, we could potentially borrow enough to buy it but the monthly repayment would be £1200. We cannot afford that.

We went to see Lloyds yesterday and to buy a cheaper property in a nice area (we used to live there) is £800 a month. Plus we would have cheaper council tax, mains gas and cheap rate electric, plus it is nearer to his work (so our outgoings would fall).

Now DH has been told about this financial advisor who can apparently (sp) get us a mortgage and "take something out of it" whatever that means. The person who told us also said we should consider interest only which I see as suitable for them as they get a big lump sum on retirement and a final salary pension but not for us.

So our argument is do they do interest only mortgages now for first time buyers with £20,000 deposit for a £195,000 house?.

I think DH is so keen to stay here but really I am not going to sign up for an interest only mortgage, his idea is we put £500 a month away, but why not buy somewhere else and just pay the bloody mortgage till its payed off?

Sorry, not sure about this, but bumping for you.

I'm sorry but I don't understand your OP and exactly what the arguments is?

1. stay where you are but with dodgy sounding mortgage or
2. move to cheaper area with sounder finances?

If so ..... 2 without a doubt in current climate

I'm not sure what the taking out of it bit the mortgage advisor is on about, but it sounds a bit dodgy, and no matter what they take out of it you stil lhave the problem you can't afford £1200, and if you go interest only (which I personally don't like) you will still owe £175K.

If you're not happy don't sign (assuming you need both signatures for the mortgage), I'm with you regarding moving to a different more affordable house.

Don't pay more than you can afford - simple.
Interest only mortgages: well, I started off with one of those 18 years or so ago, and then a few years ago had to change it to part-repayment because the endowment policies I had out were no way going to reach target, thanks to the shitty interest rates.

I get the general impression (and I could be wrong) that your DH just doesn't want the hassle of moving - this is a pretty poor reason to buy a house that you can't afford.

I don't much like the sound of that financial advisor, either.

We've been looking into mortgages this week and apparently now banks will only allow you a repayment mortgage if you have a plan in place to pay it off at the end (basically an endowment mortgage).

Our plan is to sell the house and move somewhere smaller, but I don't think they will accept that! They want another property that you can sell, pension, shares/investments etc. In my mind if you have any of those you probably have spare cash to pay off interest anyway, so very few people will be allowed interest only.

We've been looking into mortgages this week and apparently now banks will only allow you a repayment mortgage if you have a plan in place to pay it off at the end (basically an endowment mortgage).

Do you mean interest only? A repayment mortgage is paid off at the end with no additional planning needed.

Interest only yes, Thumbwitch hit the nail on the head saying he doesnt want to move, it is lovely here but I dont have a problem saying I cant afford it as I would rather not act all charlie big potatoes then end up being repossessed.

I dont like the sound of the financial advisor saying he can take something out either, it all sounds a bit off to me.

I knew I was right going for repayment, I have very firmly told him I am not going interest only or overstretching us. End of.

Doh! yes sorry cats, I meant interest only.

If you really want to investigate interest only mortgages, give an independent broker like London & Country a call. They can advise what is and isn't possible with your circumstances. They aren't dodgy.

However, it sounds like you can't afford to buy this house, so I don't even understand why it's under discussion. If you can afford to put aside £500 a month to repay an IO mortgage, like your dh suggests, then you could also afford the repayment mortgage. (in fact, paying down the mortgage with the £500pm would probably be the best use if the cash anyway). One of you hasn't done the sums right!

I don't understand interest only, seems to me it is like renting (because you don't gain any equity) but without the benefits (like landlord paying for repairs). I'd be looking to buy in an area you can afford with a repayment mortgage. And I'd stay away form dodgy financial advisors.

I know a couple with an interest only mortage - they find it a great starin on their finances. Almost all of their income goes on it every month yet they have that knowledge that they will never pay it off. It would be like renting, only more expensive. Personally, I would not be happy shelling out that much money every month but never actually getting any further ahead and still never really owning the property. I'd definitely go for option 2.

Interest only is exactly like renting, with the risks and responsibilities of ownership as well! Great if prices go up, not so much if they don't, a bit too much of a gamble for most.

Can be a good option if you're expecting a change in your financial circumstances in the short term though (eg major pay rise, bonus etc), that would enable you to start paying off the mortgage. Or if you're saving separately to pay off the mortgage (eg taking a higher risk via equity isas).

It's pretty hard to get an equivalent return,after tax, to beat paying off the mortgage immediately, in the current economic climate.

I suppose the only difference between interest only and renting is the stability (having been asked to move out of 2 rented houses previously) and the fact that you can make it your own decor-wise (knocking down walls, painting/wallpapering etc) to make it work for your family.

The rented homes we've had didn't feel permanent, but this one does, even though we're no nearer to owning it than we were 5 years ago! I also don't worry so much about the DCs damaging things - I was on tenterhooks about my waters breaking and ruining the stupidly light coloured carpet at our previous rented house.

However, renting in this area would have been much more expensive per month than the interest only mortgage, so sometimes it is the cheapest option.

We're banking on house prices going up at least a bit over the next 20 years - if they don't then we will walk away with the equity we put into it (albeit worth less due to inflation), but no worse off than if we'd rented.

Hi, I have had several mortgages due to a few house moves and can't imagine what this person was describing as taking out. What could you take out of a debt that has to be paid? I agree with other posts this mortgage sounds dodgy or at best will end up costing far more than you'd be willing to pay. FWIW with your dh I say talk to him and explain your feelings. Its a huge commitment and I agree not to be taken lightly when you could end up losing your home. I'm 100% with you here and don't think you are being over cautious at all. Please let us know how you get on, this is a very interesting thread.

I thought the mortgage bloke meant he would get paid for his work by the mortgage company rather than you having to pay him yourself.

When I took out my mortgage, my Advisor (independent, very trustworthy) was paid a commission by the mortgage company to arrange it, is that what they meant?

I suggest you talk to a properly qualified IFA. My bank wouldn't touch me either when I bought or when I rearranged, yet I'd been banking with them for over a decade. There are a lot of different deals depending on whether you go for Fixed Rate (interest rate is the same for a certain amount of time, but you're tied in to the same company for that amount of time) or Tracker (base rate plus a percentage)

Shop around like you would for car insurance.

Sounds mad to stay put at max you can afford interest only. Rates are at an all time low. Over the last 20 years they've been as much as 4 x higher than a current cheap rate.

I have told DH we are not going interest only. End of.

I'm not sure about seeing this FA at all and it hasn't been mentioned since.

When I bought years ago, the interest-only mortgages were only available with endowment policies. So you paid the interest on your mortgage and paid into the endowment policy, the idea being that the endowment would reach the amount of the cost of the house at the end of the mortgage period, so you would pay it off in a lump sum and get any leftovers for yourself. This was fine and dandy while the endowments were performing but is hopeless at current robbery interest rates, which are giving nothing to consumers.

I was told at the time that if you planned to move within a fairly short space of time then interest only was better than repayment, because your next mortgage would be of a shorter term, to match the endowments. So - we started off with a 25y mortgage and endowment policy; then moved 3 years later and our new mortgage was only 22 years.

The repayment mortgages then would have been 25 years each time, so if you moved regularly, you went back to having 25 years to pay off your mortgage every time. I'm not sure if this is still the case though, I mean a lot has happened since I bought my first house 20 years ago!

So at the time there was a point to the interest only/endowment mortgages, plus they were cheaper monthly repayments than the repayment mortgage.

If you're not planning on moving again though, then repayment is far better. And with the current state of the interest rates, repayment is far better. Giving any money out to any speculative enterprise is always a risk, and I wouldn't bother again.

As Thumbwitch says, really, and the cut-off for preference of interest-only or repayment used to be 8 years. i.e. if you were likely to move within 8 years you were better off with interest-only. With repayment, you don't repay much capital at all in the first few years, you're paying interest mostly, you see.

I used to have interest-only with PEPs and later ISAs as the repayment vehicles, rather than Endowment. I was seen as rather unusual for doing this, but in 1995 all my research pointed at this being the smart move. Has been fine. On our last move we went part-repayment, part-interest-only-plus-ISA, which is one way to spread your issues about that. Interest only plus repayment vehicle can give lower monthly payments. The risk comes into how you invest to repay it at a later date. Repayment is the same thing really, as you could repay it but end up with a house worth less than you've repaid.

The taking something out... could he be referring to an offset mortgage? You offset your mortgage with savings, and even your monthly income in some cases? These were a good deal a few years back, but I think have become expensive now?

It sounds to me like you both need to do a lot more investigating into how mortgages work, and come to an understanding of it and how it fits with your lifestyle, income patterns, future plans, approach to risk, etc. Definitely only talk to reputable IFA - which means Independent, not tied to one bank/BS/product provider.

I don't know if they still do it, but in 1995, the Which? Guide to Buying, Selling and Moving House was a brilliant introductory guide to all these things, and it helped me make some really good decisions with my first and subsequent purchases.

Good luck!

Bear in mind that with base rate at .50% this isnt going to stay the same for the term of your mortgage so when you look to start repaying the capital it's likely to be higher than the £1200 pm quoted now.
I used to do mortgages for a high st bank and we would often have people do part repayment and part int only - usually they would be thinking they would get an inheritance at some point .

Personally I would go for the smaller mortgage option, outgoings are only going to get higher so why start at a mortgage on the limits ?

Interest rates are quite low at the moment.

I gather an interest-only mortgage would use up all/most of your available income.

Apart from considering what would happen if one of you lost a job, had a bad illness or injury, was unable to work, or had a reduction in income, try to find an older person who lived through the Thatcher years, and ask how they coped when mortgage interest rates went up to 17%.

I do remember the thatcher years.

A repayment mortgage of £1200 would use up more of my income than I am willing to spend on a house with electric heating, that needs full decoration, new bathroom, new kitchen, carpeting throughout. I think the LL will struggle to get the amount he paid for it to be honest.

So my plan is to have a repayment mortgage of £800 a month so I can always have savings.

I cant wait to have gas central heating again!