Okay. Tell me about interest only mortgages.

I have an interest only mortgage. It's over 40 years and I am not making any provision to pay it back. However, I bought my flat on my own and was in my late twenties so knew I was only going to be there a few years. I'm now about to move in with my other half and will be renting my place out so will keep it as interest only.
It's not something I'd do if there were two of us paying the mortgage but it meant I could afford my own place and it was always a short term solution, much like in your case.

My friends are doing this at the minute. You're not alone ?
Don't know any of the details though.

OK, first of all I am not currently authorised to give advice I will just tell you from my personal point of view.

We have just remortgaged our property on an interest only basis despite me being of cautious nature and normally always going on repayment. We have remortgaged for 3 years and at the end of that time we will be considerably more comfortable money wise and will be going back on to repayment. This is due to currently paying an extortionate amount in nursery school fees which won't be there when my daughter goes to school.

Two things to bear in mind. In a few years the market will have changed. Poor the better or worse who knows? But just be prepared that if it is for the worse and rates are higher again when you come out of your fixed period you may still not be able to afford it on a repayment mortgage.

Also, the lenders will tend to want to know what form of investment vehicle you will be using. Whether that be the intention to sell on the property in future, or an ISA or such like. Some lenders may want to know account numbers.

I'm not a fan of interest only from my own point of view but if it's something you have to do and you can live with the consequences or change in the future then their not such a bad thing if it means keeping a standard of basic living.

You are definitley not alone. While interest only is not ideal it does suit some people especially in the short term.

We have an interest only mortgage at the minute which while isn't ideal suits us for now. We are paying off part of our wedding and will hopefully be earning quite significantly more this time next year - by the time we come to remortgage we will hopefully be better positioned to go for repayment but now it is pressure we could do without.

In the mean time should we pay off credit cards and the like sooner, we will endeavour to set extra money aside to pay off part of a small part of our mortgage before remortgaging which will kind of have a bit of a repayment effect.

I think the key is to remember it is a short term solution and that you will be paying more in the future (perhaps a lot more depending on interest rates) and not get to settled in the amount you pay temporarily on interest only IYSWIM

Thanks for your replies ? Comforting to know there are others in the same boat.

CJ, you make some great points, thank you. Funnily enough, having to pay nursery fees will be one of the big drains on our finances too...

Quite honestly, i have no idea what we'll do if the rates have increased when we come out of this 2 year fixed deal. I always thought we'd be quite safe because our mortgage is pretty small by London standards [less than three times our combined salaries]. However, when we fixed five years ago, we didn't take into account having a baby ?

I think if rates get much worse, we'll be thinking of more drastic measures like selling our flat and releasing the equity. Obviously, this is absolutely NOT what either of us what - we'd like to hang onto this flat as a nest egg, but if rates go up, what are you going to do? I can't imagine we'd be the only ones in trouble - we are the least extended on our mortgage of almost everyone we know of our age group.

thanks again all for your replies ?

We're on interest only. We bought our first home in London 3 years ago and signed up for a homestart mortgage, which was 2 years fixed rate interest only, then one year floating interest only, then capital repayments with the option to pay a fee to fix the rate again.

After almost exactly 3 years, and with our property having risen a lot in value (just confirmed by the surveyor today ?), we're remortgaging and taking out another interest only deal. So yes, you could say we do this as a matter of course.

The way we're looking at it is that this property is gaining a lot in equity on its own, so we would rather pay as little as possible on the mortgage and make sure we have money invested in other things, as putting it all in the property is putting your eggs in one basket as it were. We know we won't live here forever, so when we sell, we should make a nice chunk of cash to pay as a deposit for our next home, which is likely to be in a cheaper location than London. Of course there is always the risk that prices will plummet, H loses his job etc. but no investment is without risk and we're pragmatic enough to realise that should anything happen that makes us have to sell, we have to sell, and make the best of whatever happens (we'd probably go travelling or something!).

So from my point of view, interest only shouldn't necessarily be viewed as reckless. You just need to think of the eventualities and whether you could live with them.

Me and h2b have been on an interest only mortgage for the last two and a half years and it is due to run out in october this year when we'll switch to a repayment mortgage.

This was done on my fathers advice and he's a fully qualified financial advisor and mortgage broker, it was the only way at the time we'd be able to afford to get onto the property ladder.

I think for a short period of time then they're not too bad, so you should be ok.

We're interest only too. We bought the property a year ago and have another year to run at which point we'll hopefully switch to repayment.

We did it because we had to spend a lot of money on the moving costs and are also getting married this year so had to save for that and we just didn't have the extra cash. Both our salaries have gone up now so we should be ok to switch to repayment.

I don't think there's anything wrong with doing it at all if it's just for a fairly short period of time ?

We're also interest only, mainly because Mr G changed jobs which meant that paying the capital as well was a complete nightmare. I do hate being on interest but I'm hoping that in the next year or two it'll be over!

When we remortgaged last year, we did the first three years as interest only, bit only as we had a 20% deposit.

Keep in mind some mortgage brokers are forecasting a fall in house prices over the next year, and you may end up in negative equity if you don't have a substanial deposit.

Thanks for all these additional replies ? It really is a great comfort to hear of others who are in the same situation, but who have decided in a logical and reasoned manner that interest only is okay as a short term solution. I think we're all very well aware that it's far from ideal, but when money is tight, it can be a valid option.

That's a good point about negative equity though - and a reminder that things could be a lot worse. I know property prices could well drop, but at the moment, it looks like the equity in our property is two-thirds of the total value of our mortgage, so i do get some peace of mind knowing that prices would have to drop dramatically for us to end up in the nightmare of negative equity.

I just really, really hope that interest rates don't rise again...

thanks all ?