paying off mortgage

A layman's view.

The population is ageing, round here smaller houses are at a premium, especially 2 bed bungalows suitable for retirement. Downsizing may not provide the yield you need especially if during revaluation(s) the Council Tax is increased dis-proportionately on larger properties.

DG

In message , Steve F writes

Not sure of the pros and cons - these will depend on circumstances and attitude.

I own several properties and have the lot on interest only. The plan is to do one of two things:

3) Continue to pay the interest with the rental income.

There are no pros. Well, OK, there is one, namely that the monthly cost is less, but the price for that lame pro is a load of cons.

It will cost you more in interest. Most people don't realise that it will cost more overall despite it costing less per month. But suppose the interest rate were a constant 6% per year. For 20 years on £40k that's £48k. A repayment at 0.5% per month over a

How sure can you be that you'll be able to downsize enough to free up £40k cash with which to pay off the extra borrowing?

How sure can you be that your existing endowment (not endownment, that's feathering your nest) will have paid off the other £60k? If it doesn't, the downsizing would need to free up £40k plus the shortfall.

Have considered option (3)? This is the same as option (1) with the exception that you also convert part of the first £60k to repayment. It means you pay more per month, but it's like saving at the loan interest rate, and will enhance your options later on, so that you will either not need to downsize, or if you do then some of the cash freed up by so doing will not already be spoken for in terms of loans having to paid off, and you can treat yourself to something.

"Ronald Raygun" wrote

That was quite a good post.

Looking at buying a new house (with extra 40,000 of mortgage).

Two options suggested are:

What are the pros and cons of (2)?

It sort of depends on what you are trying to achieve.

By only paying the interest (using 6% as Ronald) you are saving yourself just over 86 a month in repayments. Will this money be used to fund a better lifestyle or do you plan investing it elsewhere?

Its yet to be seen whether people with interest only mortgages who cannot repay capital at end of mortgage term are forced to sell their house or whether they will be able to continue funding the monthly interest (with their pension) indefinitely.

That might be quite a good strategy to avoid inheritance tax, presumably - indebt the estate?