Interest only mortgages + lifetime isa.
Discussion
Ive been thinking about this for a while but getting my first house this year at 35 so a 25 year mortgage will be cleared by 60.
I could pay it monthly on a repayment but and its a big but i could get interest only and put the balance towards the lifetime isa.
Mortgage would be around 100k so about £400 ish/month
The calculator for the lifetime isa would be £333/month and 180k paid out at 60(25 years) at around 5% return through a sip after fees. This would leave a 80k lumper and the house paid off.
Is this a silly idea, putting to much faith in the LTI still being available in 25 years ot the goalposts moved.
I could pay it monthly on a repayment but and its a big but i could get interest only and put the balance towards the lifetime isa.
Mortgage would be around 100k so about £400 ish/month
The calculator for the lifetime isa would be £333/month and 180k paid out at 60(25 years) at around 5% return through a sip after fees. This would leave a 80k lumper and the house paid off.
Is this a silly idea, putting to much faith in the LTI still being available in 25 years ot the goalposts moved.
Even if the lifetime ISA gets scrapped, there is likely to be something similar. Before ISAs we had PEPS (Personal Equity Plans from 1986 to 1999), so the principle has been going a while. It is unlikely that any government is going to discourage taxpayers from saving, as if taxpayers don't look after themselves, the government will be expected to, and they don't want that.
In addition to the ISA, lump sums into a personal pension (SIPP) to get your tax back and the 25% lump sum at 60 is an efficient way of saving. You can take more than 25% out as a lump sum, but you would be liable to pay income tax at your highest rate at the time, with current rules. The compound growth over 25 years on a lump sum with the tax rebate could make a serious difference though.
A benefit of a ISA is that if interest rates went up and you were really struggling, you could take some money out of it to help cover the interest payments. That really would be a last resort though to avoid missing an interest payment.
In addition to the ISA, lump sums into a personal pension (SIPP) to get your tax back and the 25% lump sum at 60 is an efficient way of saving. You can take more than 25% out as a lump sum, but you would be liable to pay income tax at your highest rate at the time, with current rules. The compound growth over 25 years on a lump sum with the tax rebate could make a serious difference though.
A benefit of a ISA is that if interest rates went up and you were really struggling, you could take some money out of it to help cover the interest payments. That really would be a last resort though to avoid missing an interest payment.
Yipper said:
What's the betting that most of those are 'With Profits' endowments, or the attached life/critical illness/permanent disability insurance has bled the thing dry?GliderRider said:
What's the betting that most of those are 'With Profits' endowments, or the attached life/critical illness/permanent disability insurance has bled the thing dry?
What a crap article, with ‘cleverly’ cherry-picked numbers.Interest rates were 10% in 1992 and briefly increased to 12% then 15%, which followed a decade of high inflation. Clearly, in such investment conditions, stock market returns were also extremely high, which provided attractive projections.
Obviously as interest rates and inflation have fallen massively over the period, market returns have also done so, meaning lower growth on the endowment but also much lower costs on the interest only mortage, which do many are keen to forget.
Between 1999 and 2016, the U.K. stock market had almost as many negative years as positive ones - unfortunately that’s the risk that people chose to take - rather than a repayment mortgage which would guarantee to re-pay the mortgage, they elected to gamble on stock market performance to gain from significant upside (based on historical returnd) but risking shortfalls on the downside.
As above, however, the returns on the endowment only show one half of the picture. They also ignore the life cover that was provided over the period.
Obviously there was widespread mid-selling - greedy salesman seeking to maximise commission by glossing over the risks.
What is interesting is how there are often threads on here from people explaining why they are not paying off their mortgages as instead they believe they can earn higher returns by investing their cash elsewhere, sound familiar...?!
Interest only mortgages require you to satisfy the lender you have an acceptable way of repaying the capital at the end of the term.
You'd need to speak to your lender to find out what they call acceptable.
Also, interest only generally requires a larger amount of equity in the property to be purchased. You may find you need 25% deposit to be considered for interest only. Again, ask the lender.
You'd need to speak to your lender to find out what they call acceptable.
Also, interest only generally requires a larger amount of equity in the property to be purchased. You may find you need 25% deposit to be considered for interest only. Again, ask the lender.
DJMC said:
Interest only mortgages require you to satisfy the lender you have an acceptable way of repaying the capital at the end of the term.
You'd need to speak to your lender to find out what they call acceptable.
Also, interest only generally requires a larger amount of equity in the property to be purchased. You may find you need 25% deposit to be considered for interest only. Again, ask the lender.
This.You'd need to speak to your lender to find out what they call acceptable.
Also, interest only generally requires a larger amount of equity in the property to be purchased. You may find you need 25% deposit to be considered for interest only. Again, ask the lender.
They stopped interest only mortgage on your main residence some years ago, at least for our bank, anyway.
We had it on our holiday home for a few years until we paid it off.
That almost sounds like a DIY endowment mortgage arrangement? You might end up 80k up, but by the same token you might end up 80k down. At least with a repayment mortgage you have certainty that you won't owe anything by the end of it.
And it sounds like interest only isn't going to be available to you, going by the above posts. Maybe take out the longest term mortgage you can (34 years til you're 70), and then use the difference in repayments to put into savings instead? Then you can choose in future whether to divert the regular savings into mortgage overpayments depending on what the markets and interest rates are doing at the time?
And it sounds like interest only isn't going to be available to you, going by the above posts. Maybe take out the longest term mortgage you can (34 years til you're 70), and then use the difference in repayments to put into savings instead? Then you can choose in future whether to divert the regular savings into mortgage overpayments depending on what the markets and interest rates are doing at the time?
Sarnie said:
Interest Only is freely available from the majority of lenders, circumstances dependent of course........
Me and my wife asked about interest only and got a flat no even with a 35% deposit and an inheritance going through probate that's more than the total value of the property. Instead we just picked the cheapest monthly payment and lowest repayment charge and will pay if off as soon as possible. Gribs said:
Me and my wife asked about interest only and got a flat no even with a 35% deposit and an inheritance going through probate that's more than the total value of the property. Instead we just picked the cheapest monthly payment and lowest repayment charge and will pay if off as soon as possible.
Not being rude but you say 35% deposit like it is a high/risk free scenario when it is not. Gribs said:
Me and my wife asked about interest only and got a flat no even with a 35% deposit and an inheritance going through probate that's more than the total value of the property. Instead we just picked the cheapest monthly payment and lowest repayment charge and will pay if off as soon as possible.
"majority of lenders"..............and..........."circumstances dependent"...........otherman said:
Interest only is virtually impossible to get now anyway, so l think that scuppers the plan if nothing else does. Took me four months of jumping through hoops last year, even with cast iron security to double the value.
No it's not. Was offered an interest only option 2 days ago by a major `high street bank, no problems. They were more than happy that repayment vehicle could be sale of the property being mortgaged. IE: no need to show a seperate repayment vehicleGT03ROB said:
No it's not. Was offered an interest only option 2 days ago by a major `high street bank, no problems. They were more than happy that repayment vehicle could be sale of the property being mortgaged. IE: no need to show a seperate repayment vehicle
In which case any property is the investment vehicle / no need to prove anything else then claim you’d sell and rent or downsize or new mortgage in the future. Welshbeef said:
GT03ROB said:
No it's not. Was offered an interest only option 2 days ago by a major `high street bank, no problems. They were more than happy that repayment vehicle could be sale of the property being mortgaged. IE: no need to show a seperate repayment vehicle
In which case any property is the investment vehicle / no need to prove anything else then claim you’d sell and rent or downsize or new mortgage in the future. V6Pushfit said:
I’ve just started an interest only jobbie. 75k at 142 pcm fixed rate for 2 years. The cash back at the start paid the legal fees too, and the setup cost was bugger all. Very happy with it. Halifax.
2.36% for a 2 year. You can get a 10 year for the same rate - given that I’d not be too over the moon with the rate.
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