intrest only mortgage

[tali122]

if you have an intrest only mortgage at the end of the term,say 25 years you ,iirc,have to pay the mortgage amount taken out ( ie the capital ), but what if you start with an intrest only and then switch to a repayment -what amount of capital do you owe on the intrest only mortgage you originally had?- what if you had int only for 10 yrs and then changed to repayment for the next 15?

[Ethel]

When you changed to repayment, the new arrangement should have paid off the original mortgage.

Interest owed on the original mortgage would have been paid every month.

Unless yours is dfferent.

[dzug]

If you switch to a repayment mortgage then at the end of the mortgage term you will have paid off everything - by definition.

If you switch to part repayment/part interest only then it depends on the split you choose. The repayment part would be paid off leaving you the interest only capital - however much you decided on when you made the switch - to pay off.

[Zork]

Hi, there are two basic types of mortgage. Interest only and repayment. If you had a repayment mortgage for 25yrs you would make payments to include the interest and a bit to pay some off the capital. The mortgage would reduce over time leaving it paid off at the end of the term. - With an interest only mortgage you pay only the interest and so at the end of the term whether that be 25yrs or you decide to change it to 10yrs you would owe the full amount. This is usually paid by some sort of investment, ISA's etc, or some people might use the profit gained over the years. So if you change the type of mortgage from interest to repayment you would still owe the full amount on the original mortgage, but you may have made some cash on the investment. Your new mortgage loan would in effect pay off your old mortgage then you start again with a repayment. Did that make some sort of sense?

[tali122]

thanks all , zork your answer according to my understanding appears different from ethels

[brachiopod]

I think they are both saying the same. tali.

If you have a Repayment mortgage of, say, �60.000 over 25 years, your Capital repayment each month will be this figure divided by 25 (years) and then by 12 (months). ie �200 per month. (200 x 12 x 25 = 60,000). On top of this, you will, of course, pay interest at the current / agreed rate on the outstanding amount. This means you pay interest on the full �60,000 at the start of the loan, on only �30,000 about half-way through, and minimal amount just before you pay it off.

With an "Interest Only" mortgage, it is just that. You pay (in the above example), interest on the full �60,000 for the full 25 year term of the loan. In the meantime, the Lender (bank / building society) will expect you to have a "vehicle" (an investment of some kind) to pay off the capital at the end of the term. (This would normally be some sort of stock market based investment that would offer returns better than that of a savings account etc. - but also higher risks, hence the hoo-hah over 'Endowments')

If you switched Loan type mid-way through the life of your mortgage - eg. from "Interest Only" to "Repayment", the lender will (should !! ) take into account the actual / prospective value of any previous investment or 'Repayment Vehicle" before re-calculating, rather than expecting you to repay the whole capital (plus interest) in just ten or so years.

Hence, Ethel, dzug and zork are all basically saying the same thing.

(Psst - hope all goes well !!)

[tali122]

thanks - all info most appreciated