Interest only mortgage question

[Plarka]

2 Questions really:

1.When we bought our property 4 years ago, the only way we could afford it was with an interest only mortgage. A friend of ours who owns lots of properties said you should only get interest only because someday you downsize, pay the mortgage off, and buy a new property. Well I don't think that's right, because we have a 2 bed flat and probably will never get anything bigger, so we won't be able to downsize! Right? So we have an appointment with the bank next week to discuss changing to a repayment mortgage.

2. BUT now we're seriously thinking of moving back to America where I'm from and renting our flat out. So I'm thinking we should leave it at the interest only with its low payment, instead of raising it to the repayment one, to ensure that when someone pays us rent, it covers the mortgage, yearly fees, and letting agent fees. Then someday when the market is good, we sell.

Am I thinking correctly or is this wrong and someday it might not have sold, we'll be too old to change to repayment, and we'll be stuck???

[Trades MASTER]

Interst only mortgages should not be used for the long term, lets say you borrowed £200,000 over 25 years now when your term is up you have payed back £200,000 in intrest alone but you still owe the origional loan of £200,000 so in effect you are paying back £ 400,000 on a £200,000 loan

[Dan S]

Hi Plarka

If you're thinking of moving back to the states and renting out your home, make absolutely sure that the rent you'd recieve (including the extras) would cover the mortgage when the base rate goes up. Also don't forget that youd have to move to a buy to let mortgage.

Good Luck!

[New Homes Expert]

You would be better off selling the flat and repaying your interest only loan.

Your lender would never agree to your renting the property long term with an interest only mortgage anyway.

[New Homes Expert]

So you are renting a home (as you would be if you were a first time buyer) and you are suggesting that the first time buyer buys a property and rents that out rather than live in it?

Madness.

[Dan S]

I agree with you NHE, but I'm sure they realise that. I'm simply responding to the question they asked.

[Trades MASTER]

Listen im no mortgage expert and i dont claim to be one, but i do no my way around these things and personaly you will be mad to have a long term interest only deal, its basic commonsense, What will you do if, sorry, when interest rates go up? also do consider how much interest you will pay over the course of the loan plus how much of the origional loan is still outstanding, if you add these together you will find it quite scary. With a interest only mortgage you are only paying the interest, you still owe the loan value as well!

[Dan S]

Trades Master is absolutely right, in which case it really comes down to how much you can buffer yourself against the interest rate rises. You must ensure you own enough capital to ensure the rent (including void periods) always pays the mortgage.

[New Homes Expert]

You should only even be considering this if you are living with your parents virtually rent free. Even then they would probably want you to find a place for yourself before being a landlord.