Interest only mortgage for investment property

[malk33]

Does anyone know how much the monthly repayments would be on an interest only mortgage on a property costing around 250,000? And if so what lenders do these mortgages? Would it make sense to buy a rental property this way with a view to sellling in couple of years, hoping the property will rise in value?

 

[whizzbang]

Re: Interest only mortgage for investment property..

Are you a betting man (or woman)? As this is all this investment is, one big bet that the value of the house will rise higher than the amount you pay in interest each month (minus any rent recieved).

If prices stablise or fall you are on to a loser. There is a lot of talk about "Soft landing" in the market at the moment with some people saying this is a 3% to 5% rise in prices per year. At this rate you might scrape a profit. But with such low rental yields and the looming interest rate increases I think this is a very risky bet.

Try talking to you bank about an IO mortgage and ask what the repayments will be if rates increase by 2% (ie from 3.5 to 5.5%). See if you can cover the repayments yourself or if you need full time rental to manage. Remember propertys are rarely rented out 100% of the time.

Personally I think it is a bad time to make this bet as I believe interest rates are on the up and this will cause the property bubble we are living in to pop.

Have a play with this [broken link removed]
to see what the repayments are for different interest rates.

 

[ClubMan]

Re: Interest only mortgage for investment property..

See this thread:

Interest only mortgage

Whether or not property investment in general or a specific investment property "makes sense" depends on many other factors. As with any investment option you need to understand your needs/goals, crunch the numbers and assess the viability of the proposed investment. Hope is no substitute for thorough research and objective analysis.

 

[Healy1]

Re: Interest only mortgage for investment property..

I've noticed in property markets that when prices fall rental yields rise because renting becomes more attractive and people are more wary of buying. However, an important point to note: your IO mortgage payments are effected by rate rises more significantly as you have no capital element in your payment.