Owning your own home

Dr Dammit purchases house in 1982 for £22,000
House is paid off in ~20 or so years.
Title to the house now belongs to Dr Dammit.

Now, if he had an interest only mortgage then at the end of the period he would have to return the £22,000, which he could do by selling the property, and as long as the property is worth more than £22,000 he's ok?

The idea is simply that the amount OVER AND ABOVE INTEREST that he paid into the mortgage (the principal repayments) - could have been invested elsewhere.

After 20 years he has a £22,000 nest egg in an ISA.
He uses THAT to pay off the mortgage.

Title to the house now belongs to Dr Dammit.

According to John H - this is ridiculous and Dr Dammit is some crazy property speculator.

According to me it is simply a choice about how you invest your savings.

I don't understand what you are trying to say.

Are you suggesting that he waits until 2011 to buy a four bedroomed house in Winchester for £22,000?

Because that's going to be tricky.

There's probably a calculator out there for that, no?

At the moment with interest rates so low isn't it better to pay off a mortgage quicker than earn bugger all in an investment like ISA?

Yeah, and what Dammit says.. waiting for the crash could take some time..

I had moved on from the rent = interest argument to the interest only = madness argument.

He is mortgaged the whole time, in one case interest-only and in the other repayment.

Ah, no I think I might have got it- Walm is suggesting that you get an interest only, plus something like an endowment policy to pay the capital, rather than just flogging the house to pay it off?

Which was the way to do it, in the early 2000's.

This is all too confusing now.. I'm off to the cheap Seiko thread..

I've just had a look at how much I'd pay on an interest only mortgage for £100,000.

Practically nothing, to the degree that I'm trying to work out what information I entered that is wrong.

Aha, yep I got the form wrong, but still- £389 a month.

And to rent a £100k place would cost say £600 a month (estimating here...).

So you've got roughly £200 a month to save. In 332 months, at 3pc interest and no tax, you've got £103,276.

Ah, no I think I might have got it- Walm is suggesting that you get an interest only, plus something like an endowment policy to pay the capital, rather than just flogging the house to pay it off?

Ha ha ha ha ha ha to infinity.

That was my point.

I was adding emphasis.

Trust me, when you come to want to move - you are going to give MANY shits about house prices.
Negative equity and no other savings = no move.
Equity in the house destroyed by falling prices and more stringent deposit requirements from the banks = no move.

No i won't because prices will move up and down relative to my property.

I don't have negative equity or have any risk of it.

So I don't care about house prices.

The idea is simply that the amount OVER AND ABOVE INTEREST that he paid into the mortgage (the principal repayments) - could have been invested elsewhere.

After 20 years he has a £22,000 nest egg in an ISA.
He uses THAT to pay off the mortgage.

Ah, I see what you are saying.

But it still doesn't seem right to me, on interest only you'll be paying the same rate of interest over the life of the mortgate (assuming rates don't change).

With repayment you will be paying progressively less interest, so the interest you gain on the ISA is cancelled out. As the banks have to make money the rate of interest they charge you is always going to be more than they pay you.

It's a interesting idea, but I wouldn't do it.

Endowments are a well known con.
There are plenty of savings options available to everyone that aren't endowments.
e.g. ISAs (where you can invest in pretty much anything).

I don't have negative equity or have any risk of it.

So you own your house outright?

Not sure I understand the interest only issue here.

Lets use my parents place as an example:

Dr Dammit purchases house in 1982 for £22,000
House is paid off in ~20 or so years.
Title to the house now belongs to Dr Dammit.

Now, if he had an interest only mortgage then at the end of the period he would have to return the £22,000, which he could do by selling the property, and as long as the property is worth more than £22,000 he's ok?

I agree, Interest only mortgages are a fools game in the long run, but can be good in the short term.

I broke up with my ex 2 years ago, and moved out of the flat we shared for almost 4 years, I also no longer have any ties to the house/area I grew up in.... So by the start of this year i was tiered of not having anywhere I could call home, and just doing the whole flatshare thing, which I pretty much just saw as somewhere to sleep at night... This, and the fact that it was/is a strong buyers market, is why at the begging of this year I decided to buy my own flat.... I did a lot of internet hunting, rather than lots of viewings, and put in a low-ball offer on the first place i looked at, I was lucky as it was accepted, and moved in to my new place in April.

Finacially, I would have struggled to do it on a capital repayment mortgage.
I managed to secure a good three year fixed rate, and my repayments worked out £250 less on a on an intrest only mortgage. I could have just about afforded the extra £250 a month, but it would have been tight, and I would have been left with no cash for any kind of emergencies. So I took the interest only mortgage, and try to save the extra £250 a month.

My view is that in three years time, when my fixed rate runs out, I will re-mortgage onto a capital repayment mortgage, that I will be able to afford more easily as I will (hopefully) be earning a more substantial wage, and if all goes to plan, I will also have some savings to help me pay off a (small) chunk of the mortgage, but will have those savings at my disposal until then, incase of any emegencies.

I now live somewhere that I am very happy to call home. I can also call it my own home. And most importantly, I can afford it.

And the best thing is, I live on my own, so I can walk around butt-naked as much as I want. Or watch American Chopper without feeling ashamed of myself. (These two activites do not happen at the same time though, that would be weird)

With repayment you will be paying progressively less interest, so the interest you gain on the ISA is cancelled out. As the banks have to make money the rate of interest they charge you is always going to be more than they pay you.

It's a interesting idea, but I wouldn't do it.

That's true if you go for a fixed interest ISA.
You might invest in, christ knows what, Gold or something, within your ISA and make MORE than whatever your mortgage interest rate is.
Then you are better off.

For example the compounding effect of good returns on my investments in my ISA have far outweighed the paltry 2-3% or whatever it is that I would have achieved if I just paid down my mortgage so I am far better off having the ISA vs. a repayment mortgage.
(Even including the disastrous Aug+Sept stock market...)

Looking at the rate of return, surely the best thing to get to pay off one interest only mortgage is another interest only mortgage?

Using my dads place as an example, he paid £22,000 for a house now worth more than twice that, so he could have bought two, and sold one to pay both mortgages off.

Rent out the one you are not living in, and it covers itself.

So you own your house outright?

No, not entirely, but unless the cost of a bachelor pad close to the city drops to 30% of the current prices I'm not at risk of negative equity.

I find that highly unlikely.

Looking at the rate of return, surely the best thing to get to pay off one interest only mortgage is another interest only mortgage?

Using my dads place as an example, he paid £22,000 for a house now worth more than twice that, so he could have bought two, and sold one to pay both mortgages off.

Rent out the one you are not living in, and it covers itself.

This is why, for a while, Buy-to-let was so popular.

No, not entirely, but unless the cost of a bachelor pad close to the city drops to 30% of the current prices I'm not at risk of negative equity.

I find that highly unlikely.

Sorry to anyone on here that already owns a home, but I really, really hope that this does happen. No offence.

Why would it?

This is why, for a while, Buy-to-let was so popular.

Well if things carry on as they have then the purchase price of my flat will (in 25 years) be equivalent to a mid-range hatchback.

I'm very tempted to try to scrape together enough deposit to buy the one bed place currently for sale in my block, and become one of the evil Buy To Let people.

Housing seems to have more of a chance of giving me some money for retirement than the pensions I am paying into.