My partner and I are currently looking to buy our 1st home together. We are using a financial advisor and he is trying to get us to take an interest only mortgage for the 1st two years. However, I know that I will not be able to make the savings to cover the actual mortgage. He thinks that if I remortgage after 2 years inflation rates would mean that we would have sufficient capital to put down on the house, therefore, not owing any extra. Has anyone else been in the same position? If so, what do you recommend?
Any help would be brilliant as I am now at the stage where I want to rip my hair out. We are in UK (Scotland) if that helps anyone?
2007-07-23 02:22:01 · 10 answers · asked by fat_arse 3 in Business & Finance ➔ Renting & Real Estate
Realize that the power of 'amortization' is that you pay very little principal in the first years, and a lot of interest. Typically on a 30 year fixed mortgage, you will pay 1% of the principal in the first year, and 1.1% in the second. Hence if you refinance after 2 years on a traditional mortgage, you will be refinancing 98% of the balance on a traditional mortgage.
Your advisor is making 2 predictions:
1. The house value will rise in 2 years
2. Interest rates in 2 years will be the same or lower than now.
Ask him how he knows that to be true?
If you wish to have an interest only mortgage, do not take one with only a 2 year horizon / balloon. Go for a LIBOR based mortgage, that will allow you to convert at anytime within a 10 year horizon.
2007-07-23 02:43:50 · answer #1 · answered by patrick 6 · 0⤊ 0⤋
For the reasoning that you financial adviser is telling you to take on an interest only mortgage, I don't feel that an interest only loan is your best option. Although without seeing your entire financial profile, it is next to impossible to determine this with 100% certainty. Mortgage rates are still pretty good right now, even though they have been increasing over the past year. Mortgage rates are most likely going to continue increasing as well. By doing what your financial planner is asking you are going end up having to most likely take on a higher interest rate in 2 years as well when you remortgage your home. Why not just go conservative right now and take on a fixed rate mortgage paying principal and interest? This way you don't have to worry about remortgaging your home in 2 years, saving the money to truly make his idea benefit you, and you have the comfort of knowing that you are locked in with a rate for the life of your loan. Best of luck.
2007-07-23 02:33:22 · answer #2 · answered by dzwreck 4 · 0⤊ 0⤋
No!!! I would run far, far away from this guy. He doesn't seem to have be on the same page with you, and certainly isn't concerned about your financial future!
Interest only loans are soooo dangerous and, frankly, ridiculous. You're not gaining from them at all- just paying the bank. At the end of the 2 years, your principal will not have decreased at all, and you'll be in the exact same spot you're in today- you'll have the exact same amount that you need to finance. I don't live in Scotland, but I don't think that inflation rates are that high that in 2 years, you'll suddenly be making tens of thousands more per year.
And aside from that- if you're at the stage that you want to rip your hair out, it's obviously not for you. It may be possible, but it's obviously risky, which may not be what you want. If you would be more comfortable with a traditional loan with a slightly higher interest rate, just do that. It's not worth all the stress. Because you could definitely get burned doing what he's suggesting -there are dozens of houses in my neighborhood for sale right now, because people took out interest only and adjustable rate loans a few years ago, thinking "Wow- look what we can afford!", only to find a few years later that the rate they found was, in fact, too good to be true.
2007-07-23 02:36:45 · answer #3 · answered by Anonymous · 1⤊ 0⤋
To contradict everyone else, it may not be a bad idea. If the interest rate is fixed, you will know what your payments are and you will not get a suprise. An interest only loan does not lead to you owning your home. But, you can't be evicted and the rate never changes as long as you make the payments. Plus, the interest is the only part of the payment that you can deduct on your taxes anyway. With an interest only loan, you can use your money for other investments and not have it tied up in your home. It is an option and is not the worse one out there.
2007-07-23 06:22:49 · answer #4 · answered by J B 3 · 0⤊ 0⤋
As stated you only want a fixed rate mortgage and make sure it is open end. Open end means you can pay down the mortgage at anytime. If you're not sure how much you could afford,don't buy. It's better to be safe than sorry later. I was a mortgage collector for 20 years and you wouldn't believe the horror stories when they did not have a fixed rate. If you have an accountant, check with him/her. Best of luck.
2007-07-23 09:31:26 · answer #5 · answered by Anonymous · 0⤊ 0⤋
Refinancing is expensive, if you don't have jobs in two years or interest rates go up or houses don't appreciate you will be stuck in the current mortgage.
If you were 6 months from finishing an internship to become doctors or something where you know you would be better off in two years then maybe.
Find a new adviser this one just wants a commission and doesn't care what he does to you to get it.
2007-07-23 02:33:46 · answer #6 · answered by shipwreck 7 · 1⤊ 0⤋
Hi,
Your advisor may be right. But, while signing for mortgage, please ensure that it's a fixed flat rate of interest but not floating. This will guard you from rising inflation. This is the good time to go for home mortgage as lenders are in need of more borrowers. If you need more info you can visit http://www.fundsleader.info and get some useful tips on mortgage. Good luck!
2007-07-23 02:33:57 · answer #7 · answered by Anonymous · 0⤊ 2⤋
Not no but HELL NO! The catch on interest only is that you are NOT paying on principal which guess what OCCURS INTEREST! In the US this tactict would now be considered illegal (Future market concerns are unknown your "advisor" cannot make a guarnatee like this). Demand 30 year fixed and if they can't do it go elsewhere. However after looking at it for a second time you should go elsewhere.
2007-07-23 02:27:30 · answer #8 · answered by Anonymous · 2⤊ 2⤋
Your "financial advisor" is an idiot. He should be fired immediately. DO NOT, UNDER ANY CIRCUMSTANCES, PURCHASE WITH AN INTEREST ONLY MORTGAGE!!!!! In fact, in my opinion, now is not the time to be buying a house.
2007-07-23 02:36:44 · answer #9 · answered by Trevor S 4 · 1⤊ 0⤋
If you are looking to purchase or re-finance your home E-mail : Ken.LifeMortgage@gmail.com any questions you may have. We are a nationwide company with alot of programs for all different people, in all different situations. It never hurts to ask
2007-07-23 06:26:15 · answer #10 · answered by Anonymous · 0⤊ 0⤋