interest only - need advice

hi, i wonder could i get some advice...
last year i inherited a house.. it was falling down so i took out a mortgage to renovate it and i also had to pay 30k in inheritance tax so my mortgage is 140k - my boyfriend and i pay this mortgage and along with high rent. we have saving of 10k and as the house is in a prime tourist area not a location we can live we will be renting it out this summer and should earn €7000 on it. house is worth about 500k i have been advised. we have thought about selling it but would rather not if we could, we would love to buy a house at the moment but can afford repayments and it doesnt seem possible for another few years till we save more- we were thinking if we could get a interest only mortgage so we can buy a house until the holiday property takes off in the next few years, do you think this would be possible??

Re: interest only - need advise

Mainly depends on both of your Incomes and your relationship with your Bank.

Re: interest only - need advise

thanks for your advise, do you know what re mortgaging means or realizing equity???

Re: interest only - need advise

Taking a top up/equity release is when you take part of the (un-mortgaged) value of your property in a lump sum and increase your mortgage by the same amount. Thats a fairly simple way of describing it. To be applicable your personal financial circumstances must meet the lenders criteria (paperwork and eligibility similar to that of applyinig for your original mortgage but for the new amount).

You will have to approach your lender regarding interest only. As above it will depend on your personal financial circumstances - how much you are looking for, loan to value, income multiples etc.

Bear in mind also that different interest rates usually apply for investment properties.

A simple explantion of releasing equity through re-mortgaging is as follows

You have a house that was bought for €200,00.
You have a mortgage of €150,000 (equity of €50,000).
The house is now worth €250,000, but your mortgage is still €150,000, so you now have equity of €100,000.
You can increase your mortgage to €200,000 and realise the additonal €50,000 equity (if your lender would allow you, and if you can afford it, you could realise more) to use as a deposit for your own home.

You appear to have equity of €360,000 in your investment property. However, that assumes that the bank agree with the valuation of €500,000, and as PM1234 says, there are other factors that they will consider when looking at an application to remortgage/release equity.

Of course you will have a higher mortgage repayments after increasing the mortgage on your investment property, and a greater risk of negative equity.

You may wish to take professional advice on this course of action.

If you remortgage you may also need alternative/higher mortgage protection life assurance cover. Such cover is basically mandatory for owner occupier mortgages. It is not mandatory for investment properties but some lenders may insist on it anyway.

As the existing house is not your home, you could possibly re-mortgage it (replace the existing mortgage with another) or top-up the existing mortgage and switch all lending to interest-only. Assuming a sample interest rate of 5%, €160,000 interest-only would cost €8,000 per year. If you can get €7,000 rent, this leaves you liable for only €1,000 per year plus the expenses of running and maintaining the property.

You'd also then have €30,000 towards a new home.

But as stated above, whether or not you'll qualify for another mortgage depends largely on your income.

Thanks guys, i appreciate all the advise you have provided to me