How much mortgage ?

[Ric.ror]

I think it is time my son left home. How much mortgage could he get in relation to his income and what percentage of it should he be looking to have in repayment. What are the advatages of an interest only mortgage

[jean88]

Used to be 3 times his income, but the house prices rocketed so much they let you borrow up to 6 times of his income. Interest only mortgage, you only pay the interest monthly and you would have to take out an endownment policy to cover the loan amount at the end of the term, this policy includes life insurance. Or you could put money in other investments. A lot of people had shortfall with their endowments, I had that problem with my mortgage, I was lucky enough to have enough savings to pay off my mortgage at the end so I think a repayment mortgage would be better, but the monthly repayment would be higher. Percentage of income in repayments, it all depends on the purchase and his income, I would say about 30% to 40% at todays property market.

[sharpie]

Just about to start a interest only mortgage fixed for 2 yrs. My thinking behind it was Firstly i can only afford the repayments on an interest only mortgage, it worked out �200 less than a repayment.

And hopeing to do some improvements to the property meaning theres potential to gain some equity to put down as a bigger deposit when i move.

[larakitten]

hi, on average if you're in scotland, is to offer approx 3.25 x single income plus 1 x additional income if he's buying with someone.  However some lenders may offer more on the basis of " relationship pricing", ie how well he passes a credit score.

Repayment mortgages do look more expensive from the outset coz the monthly payments are higher, but Jean88 is right......interest only mortgages need an endowment policy to run alongside and involve an element of risk.  most people currently seem to choose repayment, as you know that the debt will be repaid in full at the end of the term.

hope that helps

[Oneeyedvic]

Most of the baove is true, however....

You don't need to have a traditional endowment - you can elect to have a ISA, seperate stocks etc. Just be aware that there will be the toal amount outstanding after the mortgage ends.

As an exmaple, if he had �70,000 on an interest only mortgage over 25 years - after 25 years, �70,000 would need to be repaid.

The advantage of this type of deal is that it is certainly much cheaper in the short term - mortgage payments will be cheaper - as a rough guide - a �70k mortgage over 25 years @ 5% will cost �413 repayment compared to �291interest only.

If you feel you could put the � �130 a month to better use, then so be it, but in 25 years time there is a payment that needs to be made. Also bear in mind though, that this can be a convenient way of getting onto the housing ladder. They can always remortgage later if house prices go up.

I would also like to say that the x6 salary is a bit of a myth. Whilst there are some companies who will lend this sort of level, it is predominately for people such as solicitors / accountants who are staring their training. Lenders will lend more as they are fairly certain that they will be earning more once fully qualified.

If you check out every banks websites, they have a mortgage calculator on them where, if you put in your son's income it will let you know how much he can borrow. The typical is 3.75 times salary. Again, this is not hard and fast and the banks will consider more, but only if he has an a1 credit rating (never defaulted etc), has a sensible deposit and (most importantly) if they feel he can afford it.