3CorsaMeal
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Registered: 11th Apr 02
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Quick question from a mortage noob (might even be spelling it wrong for all i know)
Is it correct that a mortage that is interest only, your only paying the interest off of your debt?
How does that work?
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VegasPhil
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Registered: 16th Jan 05
Location: Fareham, Hants Drives: Octavia VRS
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It's just as it sounds.
There are two types. Interest Only (You pay the interest off) or Repayment (You pay the interest off and repay a portion).
Money Made Clear is a decent site for looking into Mortgages - Loads of info here:
http://www.moneyadviceservice.org.uk/yourmoney/mortgages_and_homes/default.aspx
[Edited on 20-02-2012 by VegasPhil]
Corsa 2.0 16v Vegas - Sold
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whitter45
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Registered: 15th Nov 02
Location: Norton
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quote:
Originally posted by 3CorsaMeal
Quick question from a mortage noob (might even be spelling it wrong for all i know)
Is it correct that a mortage that is interest only, your only paying the interest off of your debt?
How does that work?
interest only just pays off the interest that is accumulated each month
i.e if you borrow 100k, you pay the interest each month for the term of the mortgage and then you need to pay the 100k at the end
Most lenders require to have a plan or illustrate you will have the value of the mortgage at the end of term to pay it off
In other words just do a repayment
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3CorsaMeal
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Registered: 11th Apr 02
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So what do people on interest only do, when they reach end of mortage, do they need to find 100k to pay up or they end up having the spread the 100k over another 20yrs or so.
seems weird to me and i can't see the benefit for most people
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James
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Registered: 1st Jun 02
Location: Surrey
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Only benefit is lower repayments.
It's not really any different to renting other than the fact that you would benefit from any rise in house prices.
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3CorsaMeal
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Registered: 11th Apr 02
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i should of bought a house years ago and rented it out while i lived at home
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Aaron
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Registered: 9th Aug 04
Location: Cottingham, East Riding
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I should have invented Facebook
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Russ
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Registered: 14th Mar 04
Location: Armchair
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i should've invented Aj.
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Aaron
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Registered: 9th Aug 04
Location: Cottingham, East Riding
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2008 called...
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Paul_J
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Registered: 6th Jun 02
Location: London
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quote:
Originally posted by James
Only benefit is lower repayments.
It's not really any different to renting other than the fact that you would benefit from any rise in house prices.
I guess the only other thing is that during the time while they're only paying interest only, inflation has been increasing the amount of money they earn has gone up / the house value may be rising, but the original amount borrowed will remain stuck at that fixed figure (interest only repayments stopping it from growing)
So they may have borrowed 39k in 1980 (when it was a lot more money), paid interest only for 20 years or so, and then started re paying it... if property prices had been increasing each year on year, they may now be living in a place worth £180k and their repayments may only be now £300 ish / month, compared to a modern salary practically nothing!
Based on a true story of a woman that works at my work.
[Edited on 22-02-2012 by Paul_J]
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Toby
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Registered: 29th Nov 05
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quote:
Originally posted by Paul_J
quote:
Originally posted by James
Only benefit is lower repayments.
It's not really any different to renting other than the fact that you would benefit from any rise in house prices.
I guess the only other thing is that during the time while they're only paying interest only, inflation has been increasing the amount of money they earn has gone up / the house value may be rising, but the original amount borrowed will remain stuck at that fixed figure (interest only repayments stopping it from growing)
So they may have borrowed 39k in 1980 (when it was a lot more money), paid interest only for 20 years or so, and then started re paying it... if property prices had been increasing each year on year, they may now be living in a place worth £180k and their repayments may only be now £300 ish / month, compared to a modern salary practically nothing!
Based on a true story of a woman that works at my work.
[Edited on 22-02-2012 by Paul_J]
yeah but with a repayment mortgage over time that £39k would have reduced meaning less interest to be paid and that the payment now would be less than £300ish per month and the house is worth the same amount.
Even though in the early days the repayments would have been higher, it would still have been more beneficial now
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John
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Registered: 30th Jun 03
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You won't get an interest only mortgage now unless you can show you are investing money somewhere else to pay it off at the end, which people who want interest only mortgages probably won't.
Are you sure about that Paul, was it not an endowment or something like loads of people had back then? It was interest only but they invested the other portion, which didn't work out to well for a lot of people.
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James
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Registered: 1st Jun 02
Location: Surrey
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I'm going to buy a house in Scotland and sell it down here. Should make a shit load 
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Paul_J
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Registered: 6th Jun 02
Location: London
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quote:
Originally posted by Toby
yeah but with a repayment mortgage over time that £39k would have reduced meaning less interest to be paid and that the payment now would be less than £300ish per month and the house is worth the same amount.
Even though in the early days the repayments would have been higher, it would still have been more beneficial now
Well I wouldn't recommend it anyway, they had large increases in house prices / inflation which ensured that the scenario 'worked out', although saying that at times when the interest was at 16% in the 80's I can't imagine it being that pleasant either.
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3CorsaMeal
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Registered: 11th Apr 02
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quote:
Originally posted by James
I'm going to buy a house in Scotland and sell it down here. Should make a shit load
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