General (main property discussion here) - repayment vs Interest only

First of all, I would like to say what a great site this is! the wealth of info on this site is amazing.

Anyway, I have a quick question, somebody once told me that if I changed my current mortgage which is repayment to interest only and saved the difference into a saving account, then using that lump sum say once a year to pay back the capital I would pay back my mortgage quicker. Now this whole thing has been on my mine for sometime so I'm hoping somebody here can help me out.

Any help and advice is greatly appreciated Thanks

You must be getting a good return!

Mayur,

Theoretically its possible, but as Jasprit points out, it is influenced by your returning interest rate...

The question to ask yourself is why you would want to pay it back? If you want to grow as a Landlord, then use the difference, saved up once a year to get a another property! The money you make on capital growth (depending on where you invest: hot-spots etc...) will more than make up for not paying off your interest only loan.

Please note that I am not a financial advisor so the above information is only sharing my own business model with you.

Best wishes and let us know what path you take.

Regards, Malik

Hi there, your friend is totally wrong, allow me to explain 1st of all savings accounts tend to offer a lower rate than your mortgage account and secondly you may be liable to pay tax on your savings accounts. With reference to repayment vs interest only this is totally dependent upon 1) your business plan and 2) long term objectives... ie. if you intend to retire and use the rents as income supplimentation then you may be better of with repayment as the mortgages will be paid off on retirement so then all the rents are profit minus tax of cause.

Now if your objective is to buy more and more investment properties then you may want to consider intererst only as you will need every extra penny towards future deposits.

Also are you going for capital growth or income today or income in the future? Capital growth = interest only.. income today = interest only... income in the future poss within retirement = repayment...

As you can see its hard to advise without knowing what ones long term plans are.

Hopefully ive helped you.

Alex M

www.oakhillmortgages.co.uk