Re: house prices

You're totally missing the point.

When you have an interest only loan you are relying on the property's capital gain for your profit. You don't care whether you 'own' it or not that is a furphy. If you hold the property for 10 years it's value will have more than doubled also rents will have at least doubled in that time too. The tenant will have ensured that you have more than paid the interest and that you will make a profit on the sale far higher than the investment rate.

Having said that while there is a place for interest only loans in the short term, they are more expensive in the long term; far better to convert to a mortgage on a property as soon as practicable especially in the current low interest environment. However they are useful for giving you 'capital' to make further property investments to increase the value of your portfolio.

You never make any money on your own dwelling only on those 'other' properties. However when you go on a pension then the more money invested in your own property is better because your own house is not part of the means test - which is why I have no investment properties now (not to mention the fact that I had to give my wife a house as part of our divorce settlement)

Re: house prices

House prices still rising .

http://www.dailymail.co.uk/property/...-DAY-2017.html

Re: house prices

I can't agree if we couldn't afford a mortgage and we couldn't there were other options, council houses, shared ownership with council, cheaper rentals etc.

When we looked at buying when we were 25 we had combined income of 10k and houses were about £30k starter homes. Now at 25 my kids are earning £15k and houses are £195k starter homes. We had to have zero deposit they need £60k.

I can't imagine they are thinking this is no harder than the 70s and 80s.

Re: house prices

At the end of the day you either own a house/flat or you don't.

As long as you can call it a home nothing else matters.

Re: house prices

Oh dear Bruce has missed the point not me


If you have an interest only loan the capital, ie the house, still belongs to the person who owns the house until the total house value is paid. That is irrespective of who lives there.

Think of it like a car interest only loan, at the end of the loan period you have to pay the capital or hand the car back,. until then you never actually own the car


Same with a house interest only loan you never actually own the house until the capital is fully paid.

Re: house prices

But that's the same with any mortgage until you pay it off which with an interest only you do at the end with insurances or savings etc. Try not paying a repayment mortgage a few times and you will see your house in the banks hands too.

Re: house prices

Bruce and Realspeed you're over complicating this difference between
Interest Only Mortgage Loan.
Ordinary Mortgage loan.

You don't own your home with either until you make the final payment and both are usually for set terms.

Interest only, you never pay off anything from off the original loan amount until the last payment. So if you borrowed 30k you pay off 30k at the end after paying Interest Only on the 30k (to keep it at 30k).

The selling hype with them was the promise that after speculation in investments your 30K investment package, after 10 or 25 years whichever, would be worth 40 or 50K or more. So you pay off the 30 and enjoy a financial bonus.
A great many people linked pensions to the same policy, which smacked them in the face in the end.

Ridiculous profits and bonuses were promised and fell far short after the slump which is why we had the miss-selling scandal.

Ordinary mortgages are simpler. They are virtually pay as you go. You are, in effect, buying some bricks each year and your initial 30k loan is always reducing. But it still takes to the end of the mortgage to buy the final brick.

Whichever mortgage , as a rough rule of thumb over a 25 year mortgage, including accrued interest ..you'd pay about two and a half times what you borrowed. In other words your 30k mortgage would have finally cost you 75k to eventually pay back.

The general idea is that your house will increase considerably anyway in value over the term of the mortgage and be worth more than 75k .. so you could say you end up having lived rent free and also make a bit of profit.

Re: house prices

Rubbish! an interest only loan is exactly the same as a mortgage loan where the lender has a claim over the property.

Re: house prices

I found this on google:

An interest-only mortgage offers a cheaper way to purchase a property than with a capital repayment mortgage, because borrowers are only paying off only the interest and not the capital.

For example, a £150,000 homeloan at 5 per cent over 25 years would cost £625 per month interest-only, and £877 per month capital repayment.

But at the end of the mortgage term, the interest-only loan will have paid off only the interest - leaving the orginal £150,000 debt to be repaid, whreas the repayment mortgage would have cleared the debt.

That's for a mortgage in the UK it may be different in Australia

Re: house prices

No it is similar. Some make believe figures:

Say you put £10000 as a deposit on a £160000 place (remember you have collateral in your home and perhaps other investment properties) and pay £625 per month, you rent it out at £800 per month and assume you make no real money because of insurance, maintenance etc and just break even. (but remember too that you are claiming depreciation for any improvement or fixures and fittings against other income)

After a couple of years you sell it for £200000 (not unreasonable for a carefully chosen property) and pay back the £150000 borrowed. For your £10000 investment you have a return of £30000 try getting that elsewhere even after paying the (say) 15% capital gains tax.

As I said earlier interest only loan is not the best way to invest but it can work for you under the right circumstances obviously you buy when the market is down and sell when the market is up (most people do the opposite)