interest only mortgage?

[oops]

Hi everyone,
I was wondering if any of you have a portion of your mortgage as an interest only part?
we have a lovely but small flat here and have built up quite alot of equity in it over 10yrsw.

However all of the other local properties have gone up over this time too.

I have just come up with the idea of selling this flat and buying a house. we can keep up the mortgage payments we have now- interest and repayment..and add on an interest only bit.
This means we can hoepfully buy a small house that is about £70k more than what we have now.

What do you rhink?
disaster, or quite a good idea to enable us to live here for a few years more?
ultimately we will probably move out of london and get a place somewhere else for cash...ie the equity oon this flat (which will be the repayment and intterest part of the mortgage)

oops, I was told by financial advisor this is how the first time buyer is getting onto the market. Obvioulsy interest only is only a temp situation. I think as long as your careful you could be ok. I have done this myself not my ideal situation but as someone pointed out to me you are only paying interests for years anyway, but it was a means to an end IYKWIM.
Hope this helps larsxx

As long as you understand that you are not paying back any of your mortgage, you are simply (as it says on the tin) paying interest only. You will need to find some means of repaying this ultimately - be it by overpaying in the future, inheritance, or something else. It's not a long term solution as if you don't do anything about it you might be forced to sell the roof over your head to repay your debt - but in certain circumstancs it's fine (eg if you know your income's going to increase in future etc)

(I'm a mortgage broker and mine's interest only at the moment - because whilst the kids are little I'm working reduced hours. However, we are making overpayments to bring themonthly payment up to the repayment mortgage equivalent, but being interest only gives us the flexibility to miss that overpayment if things are a bit tight)

hth

When we bought our first house we got an interest only mortgage with an endowment. Obviously since then endowments have not done well. When we bought this house we doubled our mortgage and carried over the interest only part but got the other 50% on repayment. Due to a predicted shortfall in the endowment of about £6K we started overpaying on our repayment part to balance the books. Anyway last time we were up for review we switched to a mortgage that wasn't flexible but we upped the repayment portion by £4k which should help to pay it off sooner. I think in 2/3 years time when it is up for renewal again we will do the same thing, increase it by a few K. You could do something like this.

We are very lucky though. We live in a cheapish area of the country in a reasonably nice house which is worth twice what we paid for it (irrelevent because we are not moving) and only 16 years left on the mortgage.

We have got an interest only mortgage and we will pay off the principal when we sell in 25 years or so. If we come into cash before then, we can pay it down, but at the moment, with small children and big expense it is the only way to go for us. PLUS it is an offset mortgage, so if we have extra money, then the interest payment is less that month, rather than having to commit it to the mortgage.

sounding quite good so far

do you think that we can repay capital and interest on a portion of the outstanding balance then just interest on the rest?

I think we would decide to cover the shortfall by selling in a few years time..

at the moemnt i am on mat leave and will poss sgo back to work part time, but childcare for a 3yr old and a 1 yr old will leave me pretty much out of pocket i reckon..
when they go to school things will settle a bit though.
And with my job i have the poss to go self employed and work at weekends
so i reckon we won't be in massive trouble in the long run, but it is scarey to commit yourself to a bigger mortgage, much of which is interest.

thanks for the replies

Personally under those circumstances I would sell your flat put the equity in the bank and earn interest whilst you rent a house that suits your needs in the short term.

What if you buy a small house and then can't sell it or the prices drop and then all your equity disappears, what if the interest rates go up or one of you looses their job ?

All things that ultimately in the long term won't matter but as you want to move out of London you need to protect your equity.

the pice for renting in this area would eat up some of the equity too i think.
the mortgage for here is £700/month and to let it out would be around £1200/month.
we looked into it before when we were thinking of going abroad..

so to rent somewhere bigger, which is the point of doing all of this, we woould be paying out too much.
The whole property wouldn't be interest free, just about £70k-£100k
and we would still have about £70k on an interest and repayment type mortgage
(before you all do the maths, we are on a 14yr mortgage term!)
but i do see your point about house prices...

and i am very emplyoable as there is a shortage of people in my proifeesion of my age/experience/etc.
dh could lose his job at any time, but we sort of see me as the main breadwinner even tho' i am earning nothing atm...

Would the interest on the equity make up the £500 difference - obviously i don't know the figures here, just a thought.
We lost £65k on our last house purchase so I'm a bit cautious these days.

the 1200 figure is to rent OUT this property, not to rent a house in this area.
I have no idea how much that would be

if we did the intrest only bit of mortgage i reckon we would increase our mortgage payments by about £300-350 a month.
This is what we are paying as interest on our mortgage atm, and the £400 is repayment. So we would hopefully get a property about £70-90k more than this one,and have about £200k equity in it.

does that make sense?? it is late at night, and i suppose it is one of those things where i know exactly what i am talkng about, so it reads right to me..

Don't forget you pay income tax on your interest from money put into savings over and above your ISA allowance, so if you are both working then this could be prohibitive.

You don't pay interest on the capital gain on your primary residence however.

So better (depending on your circs, but generally_) to keep it in property

thanks for that, CD. That is another plus for my way of thinking.

i just have to presuade dh who is a very cautious man re money- which is good.
but i want a house!!

two thirds of our mortgage is capital repayment and the remaining one third is interest only. Its not ideal but we are intending to repay the extra as and when we can.

I am presently a SAHM so when both kids are in school then will hopefully work again which will help.

Oops to me it sounds perfectly feasible. It's not really dissimilar to what we are doing except that we have an endowment which will pay a fair amount of the interest only bit off. I would certainly check it out with an IFA.

We have about 40K on interest only and about £50K on repayment and that costs about £600 a month, then we have the endowment on top of that. The house is worth about 230K, so a fair amount of equity.

Another thing to consider is dependent on your age, at some point you could extend the length of your mortgage.