Interest Only Mortgage - Switching after 2 years

[Sweet Pea]

Hi,

I'm a first-time buyer who is looking to buy an apartment with a friend. We have been advised by a Broker to go for an interest only mortgage. However, I am not all that keen as I would prefer to be paying off some of the principal and not only the interest.

Is it possible to go for an interest only mortgage for the first couple of years (payments would be cheaper) and then switch to an annuity mortgage with another bank? Would this end up costing us more? Also, are you tied into the interest-only for several years? We'll probably sell in a couple of years but that's not guaranteed......

Thanks

 

[ClubMan]

We have been advised by a Broker to go for an interest only mortgage.

What reason did they give for recommending this option?

Is this an owner occupier or an investment purchase?

 

[Sarah W]

Just because you've been advised to go interest only you don't have to take that advice if you prefer annuity. The lenders that offer interest only - primarily Bank of Scotland and IIB Homeloans - will allow you to switch between interest only and annuity at little or no cost so you wouldn't have to change lenders and, no, you are not tied into an interest only mortgage in any way.

Sarah

www.rea.ie

 

[Sweet Pea]

Hi ClubMan,

I am an owner-occupier. We were advised to go with Interest Only as the monthly repayments would be less.

Thanks Sarah - the idea is that we would pay an interest-only mortgage for two years and then either sell up (we're both in our early to mid-thirties and single so our circumstances might have changed!) or if one or both of us wants to continue living there for a few years, we would change to an annuity.

 

[ClubMan]

I am an owner-occupier. We were advised to go with Interest Only as the monthly repayments would be less.

Did s/he also point out that the total interest costs would be significantly higher as a result of not chipping away at the capital? Nothing wrong with that if it suits you but any honest broker worth his/her salt should point out all the relevant tradeoffs.

Use Karl Jeacle's mortgage calculator to estimate the comparative interest costs of different loan repayment strategies and rates.