Thursday, Nov 09, 2006

Interest Only

Eternal mortgages: My mortgage is imperpetuity.

There are some people who want to live debt free and that's fine. There are others who understand the value of leverage (gearing) and are prepared to take the risk that the can afford repayments and accept that the long term value of the property market is UP. This is a note for the latter:

People need to understand that the length of your mortgage payment is largely irrelevant. You will pay down your mortgage as your affordability allows and you may choose never to pay it down. Most people I know, who live around me in South West London, and these are clever folk, have interest only mortgages. This means you are effectively renting, but benefiting from any upside in the value of your property. Clearly, if you don't pay off your mortgage with lump sums, you will not own your house but because you haven't had to fund the capital repayments, you could afford a more expensive house (mortgage) in the first place and thus maintained a higher gearing to the property market. If you choose to sell and move up you will have more profit from the increased value of your more expensive home; to put towards your next purchase or if you are nearing retirement to downsize to the country, with a load of cash in the bank. All tax free.

Problem is: unless you are a well funded and can put down a sizeable deposit (50%) and have good credit history not many lender will give you an interest only mortgage.

This of course is just my view. It is surly a way of getting people into more expensive properties which hopefully will make them money and possibly be able to repay as their earnings improve.

Posted by bearmonster @ 12:07 PM (417 views)
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