I guess this topic has been done many times but a quick search revealed nothing so I'll see what response sort of response I can get.

Regardless of whether I buy a house of not - what is the collective opinion on interest only mortgages?

I know that the stock market is expected to perform fairly badly over the next few years but there appear to me to be several advantages:
- You're in charge of your monthly parments
- You can diversify your investments whereas repayments is effectively placing all your eggs in the housing basket.
- You can choose to pay off your mortgage in stages depending on how the investments are doing.
- The investments stand a high chance of gaining above the amount saved over a repayment term (hopefully that makes sense).

Let me just elaborate that final point. A quick bit of research revealed that the median growth in the FTSE250 averaged over the previous 25 years have out-performed the repayments technique since 1950.
I'm not talking about placing the money in an endowment policy but doing the investing myself so I'm in more control of the funds.
One caveat is that I haven't taken account of mortgage indemnity insurance.

I'd be interested to know what you think.

C

Why would you take one out?




How are you not in charge of your payments with a repayment mortgage? There are many ways of structuring a repayment mortgage so that you can overpay when you are flush and reduce your payments when money is tight.



Why can't you diversify your investments AND pay off your mortgage?



Why is this a good thing? And what if your investments go to sh*t?



That's what they said about endowments as well.



Strip out the 30 best days gains and then see what you are left with. The results may suprise you. And what do you mean, the rise in the FTSE outperformed "the repayments technique"? Do you mean the FTSE250 has outperformed house prices since 1950?

Seriously, just stay clear of property for a few years. It doesn't make sense to buy a house in a falling market. Interest-only or repayment is immaterial. You will be better off just sticking your money in a savings account, or splitting your money between cash and some well chosen "safe" shares.

Who said the stock market is not expected to perform well in the next couple of years? I wouldn't listen to them, as they are clearly talking BS. It is when sentiment is lowest that you'll hear these sort of comments, but actually that is usually when stocks perform the best. The stock market actually had a great year in 2004, especially mid-caps, while 2003 was a great year for small-caps. Maybe 2005 will be a great year for blue-chips -we'll see. Mine own view is that the FTSE 100 is quite undervalued right now (compared to the FTSE 250), and we'll see the FTSE 100 push 5,400 this year.

As for interest-only vs repayment.. I honestly don't think there's much difference. You have repay the principle eventually if you ever want to own the house outright, and it doesn't matter if you do this monthly with a repayment scheme or in one big lump at the end with an IO/endowment scheme. IO provides you with a bit more flexibility, but has the drawback that you need to monitor the progress of your repayment vehicle to ensure there is no shortfall. In today's market, IO mortages are just used to get people onto the ladder as nobody can afford repayment mortgages because prices are too bloody high. IO is useful for comparing the cost of buying vs renting.

Depends on the individual. If a person has the discipline to annually pay down their mortgage then why not int only - more flexibility, no hassle about the VI lender determining how much is int and how much is capital each year.

If not disciplined - Rep.