Don"t Fall For the "Start Off on Interest Only" Argument
Do you remember February 2006? A lot has happened since then.
Gordon Brown has come to power.
Saddam Hussein has been executed.
Tony Blair became involved in Cash for Questions.
Italy won the World Cup.
Michael Phelps struck Gold at the Beijing Olympics.
War has raged in Afghanistan, Iraq and Darfur.
Boris Yeltsin and Benazir Bhutto have died.
In the meantime your house price has not risen one penny! New figures from the Halifax have revealed that house prices have dropped by double figures between August 2007 and August 2008, bringing the UK average house price back to where it was in 2006.
This is the biggest fall in the average since 1983! This fall shows why it is so important to pay your mortgage back on a Full Repayment basis as opposed to Interest Only.
With a repayment mortgage, every month you pay the bank the interest you owe them, alongside a little bit of the capital.
As the interest part reduces, the capital part increases, ensuring that eventually the whole loan is paid off.
With an interest only mortgage, only the interest is paid.
At the end of the mortgage term you will still owe the bank the amount you borrowed in the first place.
In the UK many people begin by only paying the interest in the hope that the house will increase in value and they'll be able to pay the debt off by selling the property at the end of term.
This may still be possible but before you reach the end of term, it will usually be necessary to remortgage in order to avoid going onto the Bank's expensive Standard Variable Rate, and suffering "Rate Shock".
If you've only paid the interest and house prices fall then it will be very, very difficult to avoid Rate Shock.
In these times of economic uncertainty then it is more important than ever to reduce your mortgage debt.
Yes house prices will go down in the future BUT it is the next two years that are important to you.
Don't get taken in by the "start off on interest only" argument.
Gordon Brown has come to power.
Saddam Hussein has been executed.
Tony Blair became involved in Cash for Questions.
Italy won the World Cup.
Michael Phelps struck Gold at the Beijing Olympics.
War has raged in Afghanistan, Iraq and Darfur.
Boris Yeltsin and Benazir Bhutto have died.
In the meantime your house price has not risen one penny! New figures from the Halifax have revealed that house prices have dropped by double figures between August 2007 and August 2008, bringing the UK average house price back to where it was in 2006.
This is the biggest fall in the average since 1983! This fall shows why it is so important to pay your mortgage back on a Full Repayment basis as opposed to Interest Only.
With a repayment mortgage, every month you pay the bank the interest you owe them, alongside a little bit of the capital.
As the interest part reduces, the capital part increases, ensuring that eventually the whole loan is paid off.
With an interest only mortgage, only the interest is paid.
At the end of the mortgage term you will still owe the bank the amount you borrowed in the first place.
In the UK many people begin by only paying the interest in the hope that the house will increase in value and they'll be able to pay the debt off by selling the property at the end of term.
This may still be possible but before you reach the end of term, it will usually be necessary to remortgage in order to avoid going onto the Bank's expensive Standard Variable Rate, and suffering "Rate Shock".
If you've only paid the interest and house prices fall then it will be very, very difficult to avoid Rate Shock.
In these times of economic uncertainty then it is more important than ever to reduce your mortgage debt.
Yes house prices will go down in the future BUT it is the next two years that are important to you.
Don't get taken in by the "start off on interest only" argument.