 Sorting
Out Your Holiday Home Finance. EB July 2007
If you are hoping to buy a holiday home, you are
very soon going to come up against the question
of
holiday home finance. You may have
decided against looking for a
holiday home mortgage and prefer to find
your holiday home finance by other means. But if
you do need to look for a mortgage, you have to
decide what type of mortgage you want.
There are two main decisions you have to make
about your holiday home finance. One is, whether
you are going to go for a repayment mortgage or
an interest-only mortgage.
What decision you make on this will depend on:
• the reason why you are purchasing your holiday
home;
• what you can afford to put into it.
If you are buying the holiday home mainly, or
partly, as an investment to fund your
retirement, you will want to pay off as much as
possible, as quickly as possible. In this case
you may decide to look for a repayment mortgage
for your
holiday home finance. But remember,
before you commit yourself to this, you need to
be very sure that your monthly income will
stretch to repayments at that level – especially
if you already have a mortgage on your main
home.
If you don’t feel you have the ability to make
such large repayments, an interest-only mortgage
might be a more suitable type of holiday home
finance. You might also prefer to do it this way
if you are looking for an income from your
holiday home and want it to be more profitable
in the short term. But of course, you would have
to have some means of paying off the capital
eventually, which might mean selling it, or
selling your main home. There’s a good chance
you could make a profit on it, but of course you
can’t count on this.
The other decision you would have to make about
your holiday home finance is whether to go for a
fixed-rate or variable-rate mortgage. A
fixed-rate mortgage can be tempting if there is
a likelihood that interest rates may rise –
although many lenders tend to withdraw their
fixed-rate mortgages if there is a real
possibility of rates rising. At the moment, most
fixed-rate mortgages only last for a short
period and then, if rates have risen in the
meantime, it can come as a nasty shock when you
have to refinance..
It can be very difficult to know what to decide
for the best about your holiday home finance.
The best thing is to talk to an independent
mortgage broker who can give you the
best advice to fit your own situation.
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