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Interest only mortgages, your opinions

Discussion in 'General Discussion' started by zetec452, 2 Jun 2006.

  1. zetec452

    Sgarrista

    Joined: 15 Sep 2003

    Posts: 9,454

    I've heard many good and bad things about interest only mortgages.

    I'd like to know your thoughts if you don't mind.

    Cheers,
     
  2. Matblack

    Capodecina

    Joined: 23 Jan 2004

    Posts: 15,628

    Location: On my Boat, Drinking

    My thoughts are you're walking to stand still

    MB
     
  3. kaiowas

    Capodecina

    Joined: 18 Oct 2002

    Posts: 10,275

    Location: Castle Anthrax

    It's kind of a halfway house between renting and buying. You're still throwing money away but you have the security that it's your house and you won't be moving out unless it's your decision to.
     
  4. zetec452

    Sgarrista

    Joined: 15 Sep 2003

    Posts: 9,454

    Perhaps if I said im a student and looking to buy a house with an interest only mortgage?

    To rent in my area will cost between 400-450 per month. I've sourced a flat which will cost me 350 per month on an interest only mortgage. Surely it would be worth it? Or am I walking to stand still?
     
  5. Leahfd

    Gangster

    Joined: 14 Feb 2006

    Posts: 150

    I would go for it... after all it will be yours and you dont have to have it interest only forever :)
     
  6. GSXRMovistar

    Sgarrista

    Joined: 6 Nov 2002

    Posts: 9,513

    Location: London UK

    Very handy if you have multiple properties with the intent to sell them on. Or if you are investing your cash elsewhere where you know it's going to give you a good return to pay off the remaining owed on the property.

    Interest only on a long term single purchase, I’d avoid.
     
  7. zetec452

    Sgarrista

    Joined: 15 Sep 2003

    Posts: 9,454

    Its definately not a long term investment. I imagine i'd be using the property for 3-5 years at most in which I hope house prices will have gone up a little.

    Im my view its cheaper than renting and hopefully ill make a little bit of dosh at the end. A risk worth taking?
     
  8. FordPrefect

    Mobster

    Joined: 18 Oct 2002

    Posts: 2,715

    Dont forget that rented accomodation has other advantages. Such as the landlord may well pay water rates, most household repairs will be the responsabilty of the landlord as well.
     
  9. bottletop

    Wise Guy

    Joined: 26 Feb 2003

    Posts: 1,116

    they're rubbish IMHO.

    You are in effect "renting" the property from the bank/building society at its current market value but you're the one stuck with the repairs to the boiler/roof/redecorating/you name it. At least when you rent from a traditional landlord he takes the responsibilty for the repairs and upkeep, and you can leave with a month or twos notice if your circumstances change.

    Secondly, as you never build up any equity in the property you will need to save the £100 difference between renting and the IO mortgage to cover selling costs in 3-5 years time

    Don't bank on houses rising for the next 5 years, for the simple reason that global interest rates are still historically low now but are steadily on the way up and that will almost certainly turn the housing boom we've had into a bust. You're the perfect example of someone who's been denied a rung on the housing ladder using a traditional repayment mortgage because house prices are to high yet you expect some one else to come along in 5 years and pay more for it? Quite a gamble
     
    Last edited: 2 Jun 2006
  10. Bes

    Soldato

    Joined: 18 Oct 2002

    Posts: 7,294

    Location: The Ghetto: AKA Brixton

    It's like renting but with all the bad bits of owning a house thrown in.

    The roof goes: In rented, get t' landlord out and get him to fix.
    IO: get on a ladder or call someone out.

    You get the idea....

    Also houses are WAY overvalued.... Within 3 years, houses WILL be cheaper than they are now (I am saying that with a lot of certaintey). If you do decide to go for something (which I think would be complete folly at this time), for God's sake get it on a fixed interest mortgage or you'll find yourself paying more in a few months when the BOE puts rates up.

    I've been warning a couple of my freinds who are about to start looking for houses that they are going to be in -ve equity soon, but they just looked at me like I'd just sprouted a second head or something. People think property only goes in one direction, but like anything else it is in a bubble, and that bubble is getting too big now!

    edit: PS bottletop has got it pretty much spot on :)
     
    Last edited: 3 Jun 2006
  11. Sequoia

    Wise Guy

    Joined: 15 Aug 2005

    Posts: 2,948

    Interest-only mortgages are a useful tool for someone building a property portfolio in a rising market. It minimises the capital you have to invest, keeps the monthly payments down and allows you to expand more than would otherwise be the case. And, in a fast-rising market, after a couple of years, the property may well have enough equity in it to be leveraged into buying another property.

    This works beautifully, and is a relatively easy and accelerated way to make a lot of money, providing you carefully pick your properties.

    However, it is also a very good way to end up flat bankrupt if the property mrket collapses, and you suddenly find yourself with a large portfolio of property worth substantially less than you owe on it. And if anything happens to prevent you keeping up the payments and riding the drop out, well, you're in a mess.

    So, it comes down to what the property market is going to do in the next few years. That, of course, is anybody's guess. Personally, I pulled out of the UK property market a year or more ago. Why? Not because I expected a collapse, but because the growth rate I expected was far inferior to that I could get elsewhere, and the risk of a collapse was getting uncomfortably high.

    I am not a doom and gloom merchant. I still think a collapse is unlikely. But there's NO doubt in my mind that the property market is stressed in a way it has not been for quite some years, and a substantial shock to the market, perhaps even from an external source, could just provide the trigger a collapse in confidence needs to devastate the market. So in my view, a collapse isn't likely but is certainly possible.

    And given that, I wouldn't be taking on interest-only mortgages at the moment. I don't, personally, see it as the way to buy your residence, and I'm not convinced it's a good time to be speculating on property.
     
  12. zetec452

    Sgarrista

    Joined: 15 Sep 2003

    Posts: 9,454

    Fortunately the building maintance is taken care of by the owners of the bottom floor. So if anything goes wrong on that side of things im ok. Water rates are also taken care of.

    Its a 2 bedroom flat which I would hope could be quite attractive to first time buyers like myself once I've finished with it. There aren't to many cheap flats in the area as most are new developments which are easily 40k more than this property.

    I am on a fixed interest mortgage for 3 years and perhaps when im working I can acutally purchase the flat on a "proper" mortgage. At the moment in just seeing it as a better way to live as a student with the Mrs.

    The property is rather nice with no neighbours around, its also nice and quiet which is something that its hard to get in a rented new development or house.

    I do understand that property will eventually fall in price, at that point i'll just have to keep the flat and rent it.
     
  13. skiba

    Mobster

    Joined: 27 Aug 2004

    Posts: 2,955

    Location: Singapore ExPat

    Not quite sure how people can comment without knowing the value of the property, where it is, what kind of area it is, what you are paying in relation to market rate...Personally I have an interest only mortgage on a buy to let, it pays for itself and is managed by an agent so I have no interaction with it.
    Even if the market bottoms out it will always generate the rental income that I receive now so I will just hold onto it until it recovers. This is hugely speculative anyway, I see no sign of the market crashing or doing anything of the sort, property was way undervalued for years and is not showings it's true worth, my opinion is go for it.
     
  14. Morba

    Caporegime

    Joined: 7 Mar 2003

    Posts: 28,189

    Location: Krispy Kreme drive thru

    if your not planning on staying in the property for a long period of time, but instead looking to buy in a place where price will rise, then do it.

    my wife and i started out on an interest only mortgage, bought a house we knew would go up in value, sold it moved to a nicer house, still on interest only, knew it would go up in value and it has. will be moving again soon now that we have a bit of equity (near on 45% of the property) to clear some debts.

    so interest only can be a good thing, if done right :]

    i think if equity return will be more than the payment difference of IO to repayment over the period of time in the property, then go IO. or something like that.
     
  15. RoboCod

    Capodecina

    Joined: 19 Jun 2004

    Posts: 18,540

    Location: On the Amiga500

    My dads a financial advisor to the Halifax. He says that it obviously depends on your circumstances but interest only are generally a waste of time. After about an hour of him explaining the depths and reaons why he says a fixed rate mortgage for a first time buyer would probably be sensible for most circumstances.

    He also says you should go and talk to a mortgage advisor/financial advisor as opposed to relying on the opinions of people on a forum :D :p
     
  16. Norbert666

    Soldato

    Joined: 22 Oct 2002

    Posts: 6,557

    Location: Essex, innit?

    Exactly.

    I've owned 3 flats/houses now. Each I've bought in an area I know to be rising, and each with interest only.

    Whilst we are young, we are taking the oportunity to make money from property - it's one of the easiest investments you can do.

    This is how I've started from a 2 bed flat to a 4 bed house with next to no mortgage. I use the capital growth of the previous purchace to part fund the next. My current mortgage is approximately 40% of value, and when we move, probably next year I will be taking circa £180k to put into my next property.

    It also allows you to afford more expensive property, which are most likely those that will also increase in value most.

    Surely everyone's ultimate aim should be to own your house? i.e. have zero mortgage.

    Unless you are planning on staying in your property for the rest of your life, get ineterst only.

    EDIT - think of it this way. If you are planning on staying in your property for 5 years, and you do repayments. You are in fact only actually paying off the interest in the first 5 years or so anyway. You'll be quite disheartened when you come to sell and find that you've not actually chipped away at the mortgage at all.
     
  17. skiba

    Mobster

    Joined: 27 Aug 2004

    Posts: 2,955

    Location: Singapore ExPat

    This is the English mentality to pay off your mortgage, why bother, it's the cheapest loan you'll ever get.
     
  18. Bes

    Soldato

    Joined: 18 Oct 2002

    Posts: 7,294

    Location: The Ghetto: AKA Brixton

    Its all very well saying that you can just let the property out and ride out any crash, but rental yeilds are generally quite low anyway and will be much lower if prices crash! High house prices are sustaining an almost saturated rental market at the moment. You might end up having to lower any rental income so much it doesn't cover your IO mortgage repayments.

    I'm staying out of property for now- its WAY too expensive (I'm not doing this from an affordability point of view, but more from not wanting to invest and lose money).

    What are you basing this on? Can you qualify this statement?

    Everyone was saying that in January '89 and then look what happened. Property prices CANNOT continue to rise idefinatley- affordability is becoming a big issue now and a lot of the idiots who have enjoyed the credit boom of the last few years are up to their eyeballs in self- certification/ interest only mortgages on 7-10x their income... When (not if) interest rates go up, a lot of people are gonna be in big, big trouble!

    Some areas are already showing signs of a slowdown... Mortgage approval rates are falling too. I reckon we are no more than 18 months away from the start of a marked reduction in house prices.
     
  19. Norbert666

    Soldato

    Joined: 22 Oct 2002

    Posts: 6,557

    Location: Essex, innit?

    I'm not english and why take a loan when you don't need one?
     
  20. zetec452

    Sgarrista

    Joined: 15 Sep 2003

    Posts: 9,454


    I have an independant financial adviser who will give me the best advise and package, not just something from the Halifax ;)

    I was asking for generall opinions, I've already applied for the mortgage.

    One would assume that most of the people who are saying dont buy already have there own property? I don't fancy living with my parents and certainly don't see any benifit in spending 150 per month more just to rent something.