Interest Only Mortgage
Discussion
Hi folks, posting here on behalf of a friend.
Generally, how easy is it to get an interest only mortgage based on around 55% to 60% LTV? Also, do interest only mortgages generally allow the option to pay off lump sums of the borrowing?
I take it 4% interest is about the norm currently?
Sorry its a bit of a sketchy question.
Generally, how easy is it to get an interest only mortgage based on around 55% to 60% LTV? Also, do interest only mortgages generally allow the option to pay off lump sums of the borrowing?
I take it 4% interest is about the norm currently?
Sorry its a bit of a sketchy question.
Thanks both, were using 4% interest as a worst case figure then.
Yes, lumpy revenue stream is a good way of putting it. The previous mortgage payments were circa £2,200 a month, albeit self imposed that way because of the low term (12 years or so remaining when the mortgage was settled).
While that's still affordable, its not ideal from a cash-flow basis and it would also need to be over a full 25 year term in order to get the funds required. The plan would be to pay the monthly interest only (circa £1,400 or so), and save the delta between this and the £2,200 being paid previously (and any more if available of course) to reduce the capital every quarter.
FYI, house value £728k, deposit £281k so borrowing of £447k needed...so more like 61% LTV. May be able to sell an asset to reduce this to 58% if required.
If the buyer was looking at a property around circa 600k then they'd probably go for a straight repayment as opposed to the example above....so this option of interest only, or offset, is just to get that extra leg up to the next level while keeping the monthlys manageable. And at this kind of money, it seems the extra £100k buys a whole lot more house.
Swerni, would you mind explaining in laymen's terms how an offset would work? And does the above sound like a good idea, or is this unusual?
Yes, lumpy revenue stream is a good way of putting it. The previous mortgage payments were circa £2,200 a month, albeit self imposed that way because of the low term (12 years or so remaining when the mortgage was settled).
While that's still affordable, its not ideal from a cash-flow basis and it would also need to be over a full 25 year term in order to get the funds required. The plan would be to pay the monthly interest only (circa £1,400 or so), and save the delta between this and the £2,200 being paid previously (and any more if available of course) to reduce the capital every quarter.
FYI, house value £728k, deposit £281k so borrowing of £447k needed...so more like 61% LTV. May be able to sell an asset to reduce this to 58% if required.
If the buyer was looking at a property around circa 600k then they'd probably go for a straight repayment as opposed to the example above....so this option of interest only, or offset, is just to get that extra leg up to the next level while keeping the monthlys manageable. And at this kind of money, it seems the extra £100k buys a whole lot more house.
Swerni, would you mind explaining in laymen's terms how an offset would work? And does the above sound like a good idea, or is this unusual?
Burnham said:
Thanks both, were using 4% interest as a worst case figure then.
Yes, lumpy revenue stream is a good way of putting it. The previous mortgage payments were circa £2,200 a month, albeit self imposed that way because of the low term (12 years or so remaining when the mortgage was settled).
While that's still affordable, its not ideal from a cash-flow basis and it would also need to be over a full 25 year term in order to get the funds required. The plan would be to pay the monthly interest only (circa £1,400 or so), and save the delta between this and the £2,200 being paid previously (and any more if available of course) to reduce the capital every quarter.
FYI, house value £728k, deposit £281k so borrowing of £447k needed...so more like 61% LTV. May be able to sell an asset to reduce this to 58% if required.
If the buyer was looking at a property around circa 600k then they'd probably go for a straight repayment as opposed to the example above....so this option of interest only, or offset, is just to get that extra leg up to the next level while keeping the monthlys manageable. And at this kind of money, it seems the extra £100k buys a whole lot more house.
Swerni, would you mind explaining in laymen's terms how an offset would work? And does the above sound like a good idea, or is this unusual?
For an Interest Only Mortgage, you are still going to need a repayment vehicle in place. Stating that you are going to overpay the mortgage will not be acceptable as they will say that if this is the case then have it on repayment. If you say you can't afford the monthly repayment on a Repayment mortgage, then they'll say you can't afford the mortgage and decline the mortgage at the outset.Yes, lumpy revenue stream is a good way of putting it. The previous mortgage payments were circa £2,200 a month, albeit self imposed that way because of the low term (12 years or so remaining when the mortgage was settled).
While that's still affordable, its not ideal from a cash-flow basis and it would also need to be over a full 25 year term in order to get the funds required. The plan would be to pay the monthly interest only (circa £1,400 or so), and save the delta between this and the £2,200 being paid previously (and any more if available of course) to reduce the capital every quarter.
FYI, house value £728k, deposit £281k so borrowing of £447k needed...so more like 61% LTV. May be able to sell an asset to reduce this to 58% if required.
If the buyer was looking at a property around circa 600k then they'd probably go for a straight repayment as opposed to the example above....so this option of interest only, or offset, is just to get that extra leg up to the next level while keeping the monthlys manageable. And at this kind of money, it seems the extra £100k buys a whole lot more house.
Swerni, would you mind explaining in laymen's terms how an offset would work? And does the above sound like a good idea, or is this unusual?
Interest Only mortgage underwriting is getting tighter and tighter. Most lenders have moved to a max LTV of 50% and those above it will require detailed information on your repayment vehicle, whether it be Sale of another property, ISA's, pension or endowment etc.
Sarnie said:
For an Interest Only Mortgage, you are still going to need a repayment vehicle in place. Stating that you are going to overpay the mortgage will not be acceptable..
I figured this would be the case, scouts honour just doesnt cut it anymore!Cheers for the responses chaps. I guess its just now down to whether the borrowing itself is feasible.
Thanks for the offset suggestion again, looks like that may be a happy medium in this case.
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