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 Mortgage Bestbuys

House purchase  -  Remortgage  -  Buy 2 Let

Only a few lenders offer pure interest only mortgages - i.e. when you do not have to have a repayment vehicle in place to repay the mortgage (e.g. a savings plan like an endowment or the proceeds from a pension). You will generally pay a higher rate of interest for such mortgages.

If you arrange a savings plan then you will need to pay an amount that is projected to grow, at a given rate, and pay off your mortgage at the end of the mortgage term. You should pay in at least as much as you would have paid if you had a repayment mortgage, possibly more to reduce the risk of underperformance and overcome any charges to run the investment.

Investments acceptable to lenders are ...

• ISA's (Individual Savings Plans) which are flexible and tax efficient
• Pensions, although you have to pay a lot because only 25% of the fund can provide a lump sum capable of repaying the mortgage
• Endowments, although these have suffered a lot of bad press because of their inflexible structure, high charges and lack of tax efficiency - life cover is included though.

*Warnings*
Investments depend on growth rates that cannot be determined from outset. You may therefore get back more or less than the amount projected.

An interest only mortgage with an investment will only prove better value than a repayment mortgage if the rate of return on the investment exceeds the interest rate on the mortgage plus the costs of running the investment (costs may amount to 2%pa). This assumes the monthly outlay to each type of mortgage is the same. So, to beat a repayment mortgage of 5%pa, an investment would have to return 7%+pa (assuming 2% charges).

Always seek advice before choosing an investment

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