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Interest Only vs Repayment Mortgages UK | Which is BEST? | Simon Zutshi - YouTube
Channel: Simon Zutshi
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- Hello, it's Simon Zutshi
here, in this video,
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I'm going to talk about,
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should you have interest
only or repayment mortgages,
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if you want to invest in the UK.
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(upbeat music)
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Now this is a really important topic
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you need to get your head around
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'cause this is going to
have a massive impact
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on your cashflow, on your properties
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if you get this wrong.
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So listen very carefully to this video.
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Now let's talk about repayment mortgages
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first of all.
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A repayment mortgage is
where you borrow some money
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to buy a property,
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and you might have a 20
year term on that mortgage.
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And each month you make a
payment that is part interest,
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and also parts repayments.
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So at the end of the 20 years,
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the amount you owe comes down and down.
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So by the time you finish
the mortgage at 20 years,
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you've completely paid
back all of the capital
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and obviously the interest
during the loan periods.
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Now this is the type of mortgage
that most people have on
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their own residential mortgage.
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That's where they live themselves.
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The reason you need to have
it on your residential,
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or most people think you need
to have it on your residential
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is because at some point in the future,
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you probably will need to pay
off your own home mortgage.
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And that's because, when
you reach retirement age,
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you won't have as much income coming in,
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this for most people.
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And so mortgage companies
will wonder how enough you're
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going to pay your mortgage
if you're not working.
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So they want you to pay it
off just before you retire.
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That's why it's called
a mortgage by the way,
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because most people unfortunately
retire and then six or 12
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months later, tragically,
very often they die.
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And that's because they've
been working all their lives
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and suddenly they retire,
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they've got no sense of
purpose and they kind of die.
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So in other words, a mortgage,
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the French word mortgage is more to gauge.
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It's a measurement until death
or the morbid I'm afraid,
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but that's kind of what
it means. So most people,
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they take out a mortgage,
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they pay it off just before
they retire and tragically,
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they often die just before they retire.
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Now, just once they retired, rather.
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Now that's a repayment mortgage,
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and many people take that
thinking about I've got to pay my
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mortgage down into the
world of property investing,
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but property investing is different.
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The key difference is that
with an investment property,
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you've got tenants in that
property who are paying you rent,
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that rent should cover the
mortgage, the insurance,
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the maintenance, the management fees,
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and give you profit leftover.
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You must always make profit
from your investment properties.
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If you don't, it's not a good investment.
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Don't buy it.
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You must make cashflow from
every property you buy,
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that's actually golden rule
number three from my book,
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"Property magic."
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Now, if you imagine, you're
paying a repayment mortgage,
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the payments are more every single month.
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So we have a repayment mortgage
on your buy-to-let property.
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What it means is as well
as paying the interest,
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you're paying the mortgage down.
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That means it may be 20 years
the palace has paid off,
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but the problem is it means
you're paying more every month.
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So you might have the same cashflow.
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And the reason most people
get into property investing in
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the UK is because they
wants to get cashflow.
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They want to get profit
every single month.
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And if they have enough
properties giving them profit,
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it means they could replace
their income and they don't have
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to go to work. That's what I
was able to do back in 2001,
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I started working in Capris in 1995.
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I started buying property and by 2001,
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I was able to give up my
full time job at Capris.
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Now I love Capris. It was a great company.
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It was a great people who
work there, great products.
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The problem was I didn't
have the freedom that
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I wanted in my life.
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I love going on holidays and
I only had five weeks holiday.
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The other thing is I had to get up early
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to go to work every day.
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And actually I didn't
like getting up early.
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Now, ironically, I get
up early every day now,
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but it's because I want to get
up instead of I have to get
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up and go to work.
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So the point is that if you get enough
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of these cash machines, you
can replace your income.
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I did it by age of 32 in
say 2001 really was when
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I left my job. It took me a
couple more years by 2003,
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when I was 22,
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to completely replace my former income.
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If I had repayment mortgages
on all of those properties,
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I would have had less
cashflow every single month
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and it would have taken me longer.
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So this is one big reason why
you should have interest only
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is because you want to get the
cashflow from your property.
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Because when you have an
interest only mortgage,
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let's say you take out
150,000 pound mortgage.
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And normally you get 75% of
the value of the property.
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So a 200,000 pound mortgage,
you put 50,000 deposited,
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get a 75% mortgage, 150,000.
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At the end of 20 years,
you still owe that 150,000.
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Now a lot of people worry
about that. They say, "Well,
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hang on a minute. Surely
when the mortgage runs out,
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I've got to pay that back," and yes,
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you have to pay it back
to that mortgage company.
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But there are a number of
ways you can pay that back
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at the end of the mortgage term.
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First of all,
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you could actually re mortgage
and go to another company
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because remember your own home,
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you have to pay that
back by retirement age,
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but in your investment property,
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you've got other people in there
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paying the mortgage for you.
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So what you earn is not so important.
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It's more about the rental income
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generated from that property.
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So what that actually means is
that you've got this property
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generating income, and even
if you're 70, right now,
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you can be 70 years old and
you could get a real mortgage
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on your buy-to-let property
for another 20 years.
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And it's based on the income
generated from that property.
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So what that means is you don't
need to repay your mortgage.
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You could just refinance it
and get a another mortgage.
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So that's the first point, and
the first way of paying off
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your mortgage in 20 years time,
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the next way is you're probably
not going to buy just one
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investment property.
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You're probably going to
get a number of properties
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in a property portfolio.
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You could decide what my plan
was originally was to maybe
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get 10 properties, and as those
properties go up in value,
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and that's what genuinely
happens in the UK,
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because we live on an
Island with a limited amount
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of accommodation and an
increasing population,
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therefore over the
long-term property prices
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and rents also go up.
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Now we know property prices
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don't always go up,
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property, just like any
other market is cyclical.
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It goes up and it comes down.
It comes up and it comes down,
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but the long-term trend is up.
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So my plan was maybe get
10 houses and over time,
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as the value goes up,
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as each property may be doubles in value,
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I could sell half of my
properties and use that money
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to clear the mortgages
and all the other ones.
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So I have 10,
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I sell half of them,
five completely paid off.
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I get all the cashflow
from those properties.
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And that's a great strategy.
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So assuming you're not
going to have just one,
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you might have a number of properties,
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some of which you sell to pay
down the mortgages on the ones
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you've got left over, if
that's what you want to do.
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So we talked about two
different things there.
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One is you can re-mortgage
your property to a new lender.
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The other thing is you can
actually sell some properties
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to pay down the debt.
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So there are lots of things
you could do to pay back
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the money you've borrowed for
your investment properties.
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A great strategy I've talked
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about in one of my other videos,
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which is how to pay off your
mortgage in eight to 10 years
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is borrow some money from your own home.
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Use that money to buy some
investment properties.
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As the value goes up over time,
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you can re-mortgage the
investment properties
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so to completely pay off the
mortgage on your own home,
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what that means is over time,
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you completely clear your home
mortgage and you have some
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investment properties, which
continue to give you cash flow,
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and which continues to
go up in value over time.
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So it's really important
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you think very carefully about
how you utilise your assets
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and in general, on your own home,
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whilst you might need to repay
that back by a certain point,
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your investment properties, you
don't need to pay them back.
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So therefore, why would we
pay repayment mortgages,
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where eventually the mortgage
is going to be paid off
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if we don't actually
need to do that, instead,
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we can have an interest only mortgage,
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which means we get better cash flow.
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That's why many people want
to invest in property in the
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first place is to get that cashflow.
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So this is why the argument about,
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should I do repayment mortgages
and pay my mortgages down,
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or should I do interest only?
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It kind of depends on
what you want to achieve,
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but for most investors who
want to get cashflow coming in,
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it's the interest only mortgages
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are definitely the best way of going.
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Now, when you speak to a lender
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on your residential property,
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you can sometimes get interest only,
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but often they'll lend you less money.
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So a lower loan to value.
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If you want to do a high borrowing,
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they do want some sort of
repayment because in some period
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of time, you're going to have
to pay that property off.
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I can give you financial advice 'cause
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I'm just trying to educate you as to some
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of the things you can do,
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I've got lots more videos
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about this on this YouTube channel.
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You might want to check some
of those videos out and really
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understand what you should
be doing in your situation.
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The other thing you want to do
is go and find an independent
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mortgage broker who's got
access to the full market.
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Now this is someone you could
meet at one of our property
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investor network meetings.
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You might already have a great broker,
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but it's really important
to understand they are fully
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independent and have full market access.
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Sometimes people make the
mistake of speaking to their bank
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and saying what, "Bank,
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what can I do in terms of
mortgages for my own home or
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for property," or maybe they
speak to their current lender.
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And the current lender
tells them what they can do,
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but you're only hearing
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about the bank or that lenders products.
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And there are so many different
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products in the mortgage market.
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It's important
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you get someone who
understands what they're doing,
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who ideally is actively
investing in property
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like you are doing,
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and they can understand
your personal circumstance
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and they can give you
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some guidance on what is the best type
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of mortgage you should be getting
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for your property investment,
is really important
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you understand this because
this is an important decision
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you're going to make.
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Now, if you've made a mistake,
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if you've got the wrong type of mortgage,
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it's not the end of the world,
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because normally you tie in
for a two or five-year period
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on your mortgage, you could simply,
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at the end of that lock-in periods,
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you could just go and get
the appropriate mortgage
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on your property.
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That's one of the great
things about property.
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If you make a mistake with time,
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it will solve that problem for you.
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But I recommend you find a
broker getting to understand
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about what you want to achieve,
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and get some really good advice,
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so you get the right mortgages
for your property investing.
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I do hope you've enjoyed this video.
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If you do,
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please like the video,
comment, subscribe to it.
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I look forward to seeing
you on the next video.
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I hope you enjoyed that video.
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I've set up the next video
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I think you should watch
having just seen this one,
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click on the link now to watch that video.
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And also if you click on
the link just below here,
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you can access our property
investor network meetings,
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come to your very first
meeting as my guests,
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normally 20 pounds,
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but click on the link below,
come to your first one,
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just to check it out as
my guests at no cost.
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