Property Investment Advice
Question: Should I go for an interest only mortgage or a repayment?
There is no one answer that fits all but in most cases from an investor’s point of view an interest only mortgage is the best option.
I would always go for interest only, buy to let mortgages. These products have several advantages over repayment mortgages. Repayment mortgages do pay back your capital over the period of your mortgage but could the extra cash flow that an interest only mortgage gives you be better invested elsewhere? Let’s look….
The main reason for using an interest only mortgage is inflation. Inflation punishes savers but rewards people with debt. The only debt you should want is what we call good debt, like a mortgage.
Inflation devalues your debt, for example a pint of milk today may cost around 60p, ten years ago it may have been 28p. The milk is still the same but inflation has changed the price.
This table shows exactly how inflation works. While prices have gone up, your debt has devalued. Wages, house prices and costs have all risen due to inflation (plus other factors) but the debt level, although the same, is worth less
Over time rents will go up, but mortgage payments will stay roughly the same and the value of my properties will rise. So my net worth and my cash flow increases, making me wealthier. As long as I have a good sized contingency fund to allow for emergencies the debt will never have an adverse affect on my lifestyle.
This may be out of some peoples’ comfort zones as we have always been taught to buy a house and pay it off. It’s only when you start to question these out of date rules that you can make real progress financially. With the right property investment advice and education anyone can begin to develop a property portfolio.
To arrive at a strategy that you feel comfortable with or get some property investment advice, there is no substitute to speaking with someone who is doing it themselves. Either call one of the team or sign up to the newsletters below.