interest only mortgage

[SJo]

I have one properyty with a residential mortgage and now a new one for the purpose of renting, I have this one on interest only as I intend to sell this only at the end of the 25 year term, is this wise??? also If for any reason I had to sell before, what is the situation, ie from the money received how do I calculate the repayment due. I ask this as.. when you sign up with a mortgage you get a calculation as to how much you pay back, if this was eg �70,000 oroginal borrowing will this be more say after 5/10 years? I just need to know if the worst came to the worst I could repay. thank you

[WoWo]

Is this wise? Thats a judgement for you to make. The things that might make it unwise are void periods or periods when for various reasons rental income becomes less than your mortgage repayments. If you had to pay early you would'nt get much of a return in the early years, for example we just sold our house which had a �120,000 mortgage the settlement figure was around �118,000 now when you consider we paid �750 a month for 2 years thats 24*�750 = �18,000 only �2000 went of the mortgage. But in later years you'd get closer to paying it off. But remember any profit you make would be liable to capital gains. But as your on interest only you never repay capital, your big worry should be that if you need to sell and prices go down you will have to pay back more than the house is worth.

[Oneeyedvic]

If you have an interest only mortgage, then you are only paying the interest element. The total amount is always outstanding. An interest only mortgage will always be the same monthly payments (depending on interest rates) whatever the term.

 

 ie if you are paying �300 per month on an interest only, it doesn't matter whether it is 10 years or 20 years. At the end of the term, you would have to pay �70,000.00 back.

 

Is it wise? - most buy to lets are on interest only as this will give you sufficient income to pay the mortgage. If it is on a repayment mortgage, the monthly rental will probably not be high enough to cover the mortgage payments. You are essentially gambling on what house prices will be in 5 -10 years - you will only get any money if they are higher than the amount borrowed.

 

Worst comes to worst, you should only need to pay back �70,000. (I don't think there are any redemption figures on an interest only, but this may vary with lender to lender.)When asking for a quote, ask what redemption penalty there will be - this is usually given as a percentage. ie if it is 5%, you would have to pay �3500.