INTEREST ONLY MORTGAGES?
I am intellection of agitated my defrayal mortgage to an welfare exclusive mortgage as the repayments are crucifying us at the moment. Heres the score, I undergo the pros and cons of an welfare mortgage, but we are intending to delude up and move to state in 14 eld instance when my swain is healthy to verify primeval retirement. Does anyone hit undergo of a kindred status i.e. hit you absent for an welfare exclusive mortgage when your daylong constituent plans are to delude up and move abroad? Any earnest advices please?
If you have an interest only mortgage and planning to move overseas in 14 years time, then you could find yourself in a bit of a problem if property prices were to crash for any reason (leaving you in negative equity).
If the mortgage payments are crippling you, then you need to either consider downsizing to a cheaper property or changing the term of your existing mortgage e.g. going back to 25 years or to whatever the lender will allow you. Whilst you’d be intending to redeem the mortgage in 14 years time (which the bank doesn’t have to know about) at least you’d have paid some of the balance off.
I would only consider moving to an interest only mortgage if you are absolutely sure that you would be moving abroad, otherwise you have to have some kind of repayment vehicle in place to repay the mortgage at the end of the term.
One thing you should think about, at the moment you will probably have mortgage protection policy in place which is a decreasing term assurance. If you switch to an interest only mortgage you should take out a level term assurance policy to ensure that the full amount of the mortgage is repaid in the event of anything happening to either of you during the next 14 years.
Whether this will work depends on how much equity you presently have in the home. If you already have at leat 25% equity, your plan works. If, however, you have less than 10% equity, then your plan is just prolonging the inevitable money loss you’re going to probably take on the home.
I can only give you Australian advice. We do not have capital gains tax on houses that were your principal place of residance.
So what to do depends on your objectives. If you would like to start retirement with the maximum amount of money to support yourselves then an interest only loan will reduce your yield.
You said you know the pros and cons of the loan so you are obviously happy with less money at the end of the day. So go for it. It is common for people to struggle with delaying gratification so you might want to make your life easier today because you may find it easier when it is harder in 14 years time.
Just my thoughts.