Interest-only motgages? Do they serve a useful purpose... ?

Question

Is there any particular group they are good for (apart from mortgage provider)?

Answer 1

LOL -- it is scary for all the people who answer this question or try to and they have no background. I/O loans work well with people who are short term investors, people who cannot afford the normal payment and would otherwise be forced to move, and people with enough equity in their home and or old enough not to worry about it (those people are typically on fixed income -- ie Social security, disability, or pension) those whom have a fixed income are typically older and have very little cash -- so this is an option for them

Answer 2

A lot of people use interest only mortgages for buy to let properties. It's a cheap way of buying and as the property is merely an investment which they can sell at any time, they aren't worried about the actual loan being paid off. If you want a residential mortgage for yourself it's best to go for a repayment mortgage. If at any time financial issues arose with a repayment mortgage, your lender would convert to interest only for a short period to help if required.

Answer 3

the only time an interest only mortgage is really appropriate is if you have some means of repaying the debt ( such as a second mortgage free property / large bonuses / lump sums eg pensions etc)
Or maybe for the first year or two if you know you are due to receive a biggish payrise
rather than interest only go for a 40 year repayment where at least you are albeit slowly starting to reduce the capital - you can always reduce the term later or make overpayments

Answer 4

I thought the purpose of the loan was to get a family into a homes who would not normally qualify. The idea was for them to sell there home in a few years and collect the profit. With that they can move on to another home. With the housing market slow down and the value of most home down, allot of these people will have a difficult time selling these home without a lose.
Some will even loose these homes because they are unable to make the inflated payment.

Answer 5

they used to be good because the returns on investments used to be alot better than they are now. the idea was that you had a separate savings plan to pay for the actual loan, which technically could rise very quickly in value and exceed the amount of the loan you had to pay off. although the interest you paid on your mortgage might remain high, it was still less per month than paying off interest and capital and the extra monthly amount could be used for a separate savings plan. or when the value of your house shot up (as it used to) you could sell it and repay the loan amount.

in the current economic climate, savings rates are alot lower and more risky and you run the risk of not being able to pay your mortgage off at the end of the term, so best to stick to a repayment mortgage now

Answer 6

You can buy a house with a interest only mortgage to keep the repayments down, live there for a few years then sell it pay back the loan amount and if the house price has gone up you can sell it pay back the loan amount and keep the extra.......

Answer 7

I wouldn't say they are good for any specific group, but I don't think they are good! Fair enough you pay less when the interest rates are down, but in the long run interest rates are always rising! And thus your re-mortgage payments!!

Answer 8

Could be useful for an elderly person who wants to release some equity from their house.

They'd get a wadge of cash, but still be able to stay in their house till they die.

Answer 9

yes

Answer 10

i think yes