Interest Only Mortgage on Investment Property

I

ianmc

Guest
Forgive me but I am new to this thing! I have gone through hostoric postings but they have not fully answered my questions.

Last year I bought an investment property (from plans) paying for deposit with my own money. I plan on renting out the property once it has completed. I have got approval from bank for mortgage (not interest only) but have recently begun considering an interest only mortgage option.

Currently, I can only see the "pro's" of an interest only mortgage.

Could someone bring me back down to earth and identify the "cons" so I can properly weigh up the situation?
 
This post will be deleted if not edited to remove bad language falls out of market, house prices drops, you want to sell, you have nothing paid off capital and have to sell at a loss!

you wont build up any equity!

at the end of the term you're only option would be to sell, as you will probably be too old :p to remortgage!!

Can see a lot of pluses for interest only myself!!
 
Interest rates go up by 1% in the next year and your repayments go up by 25%. E1000 mortgage becomes E1250.
 
Howitzer said:
Interest rates go up by 1% in the next year and your repayments go up by 25%. E1000 mortgage becomes E1250.
Click to expand...

well, does it not depend on the amount of money outstanding ? and i have not seen any absolute figures in this thread.
May be you could give us the conditions used of your calculation?
 
bacchus said:
well, does it not depend on the amount of money outstanding ? and i have not seen any absolute figures in this thread.
May be you could give us the conditions used of your calculation?
Click to expand...

"Interest only mortgage" implies the entire lump sum is, and always will be, outstanding. By defination this is the case. Absolute figures are not required but the trivial example I gave should be sufficient assuming the current mortage rate is 4% (a lower rate means a bigger % increase, and visa versa, but the ballpark figure is the same).
 
On an interest only mortgage, you only pay the interest - so if you have borrowed, say €300,000 at 4% then that's €1,000 per month before tax relief. If the interest rate goes up by 1% (which is as likely a figure as not) then your payments will go from €1,000 to €1,250 - you will still owe the whole €300,000.

Taking tax relief into account doesn't change anything, you payment will still go up by 25%.
 
Howitzer said:
"Interest only mortgage" implies the entire lump sum is, and always will be, outstanding. By defination this is the case. Absolute figures are not required but the trivial example I gave should be sufficient assuming the current mortage rate is 4% (a lower rate means a bigger % increase, and visa versa, but the ballpark figure is the same).
Click to expand...

OK, I am with you now, Thanks.
 
I have an interest only loan on one house bought for 230k renting it out for 3 yrs making a few hundred for pocket money after mortgage is paid by tenants, house now worth over 400K, so if I sold now profit off 170k -20% tax not bad, reason I did interest only at the time was because I could not afford to pay the full amount, so my point is if I did not have the interest option only available to me I would not be in a position where I could now sell that house pay of home mortgage and put over 40K in the bank,
 
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