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Louise Smith
Posted: 07 March 2014 12:07:25(UTC)
#1

Joined: 10/02/2014(UTC)
Posts: 4

so....i am looking at a house for £129,500, the potential income for the flat and small shop it contains is £695 per month.
At a 4.99% mortgage I have worked out the following for interest only:
£695 - £291.08 (mortgage) - £139 (tax) - £50 (lettings fees) = £214.92 p.m.

At 4.99% repayment :
£695 - £413.47 (mortgage) - £139 ( tax) - £50 (lettings fees) = £ 92.53 p.m.

This is based on putting down a £50,000 deposit and borrowing £70,000.

This would be my first purchase, what would you advise on the above?
Micawber
Posted: 07 March 2014 12:35:56(UTC)
#2

Joined: 27/01/2013(UTC)
Posts: 1,974

You know, this looks uncannily like your post already made and replied to in another thread:here: http://moneyforums.cityw...t2255_Is-this-good.aspx

Why the duplication?
Louise Smith
Posted: 07 March 2014 12:50:53(UTC)
#3

Joined: 10/02/2014(UTC)
Posts: 4

Yes it is, but I wanted advice on the interest only or repayment side of it.
Karl Smith
Posted: 07 March 2014 14:46:00(UTC)
#4

Joined: 21/12/2010(UTC)
Posts: 94

Thanks: 13 times
Was thanked: 31 time(s) in 20 post(s)
Interest Only vs Repayment is a very personal thing, dependent on ones view of debt (amongst other things).

A personal view would be that if this is a "business" opportunity, then go interest only and "invest" the remaining either in the property itself or some other opportunity that secures a better return. If this is a personal i.e. pension / inheritance investment, then there's a stronger argument to build up some equity.
1 user thanked Karl Smith for this post.
Louise Smith on 07/03/2014(UTC)
Alan Selwood
Posted: 09 March 2014 22:54:28(UTC)
#5

Joined: 17/12/2011(UTC)
Posts: 3,379

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Borrowing is effectively gearing the results.

If the borrowing is affordable, and can be employed to create more wealth than the total cost of the debt, it is beneficial, PROVIDED THAT it does not also make you more vulnerable.

Unfortunately, it is the vulnerability that usually sinks people.

For example, suppose I decide to buy a £500,000 house on a 100% mortgage, interest-only : the repayments will be lower initially than those of a repayment mortgage, but because I never build up any equity in the property until I find a separate source of the £500,000 I risk losing everything if I fall behind with my interest payments.

If I have instead a repayment mortgage, I may need to reduce my total loan to take account of the higher repayments, but gradually I shall build up enough equity to own the house - or if things go wrong, I have a lower sum to find elsewhere to meet my commitments.

But ALL gearing like this, whether interest-only or repayment, is risky. If it works out, you can gain handsomely; if it doesn't work out, you can lose more than if you had taken it gradually. You can be wiped out.

Those with negative equity on their house will tell you how utterly miserable it is being trapped, with no clear way out.

Better to buy only what you can afford easily - not overdo the gearing.
1 user thanked Alan Selwood for this post.
Louise Smith on 12/03/2014(UTC)
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