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People with interest only mortgages - do they really not realise?

(308 Posts)
minibmw2010 Thu 02-May-13 09:06:41

Have read and heard several stories on the news today where they're saying many people with interest only mortgages either don't know what will happen at the end of the term (or they'll owe a huge sum) or haven't made provision.

Anyone with an interest only mortgage in that boat? I'm genuinely curious as it was heavily emphasised to me when I bought first what would happen.

Eve Thu 02-May-13 09:12:25

I have an interest only mortgage on my house I lived in but now rented. I plan to sell the house when the mortgage is up or remortgage.

In the meantime I have the endowments that were supposed to cover it, sitting waiting to mature, but stopped paying any money into them years ago.

VivaLeBeaver Thu 02-May-13 09:12:47

When I bought my first house in 1997 I had a normal repayment mortgage. A friend a year or two later recomended a financial advisor to me...he came round to look at finances, etc and talked me into changing to an interest only mortgage.

I told him I was concerned, etc about stuff I'd heard. He said that was a load of rubbish, his products were superior, etc. He said he's never had anyone where the lump sum hadn't been covered by the end. I swapped, started getting letters from Alliance and Leicester a few years later about a probably shortfall. Rang the bloke up who still told me it was fine.

Rang the Alliance and Leiccester up all worried and immediatly the woman said they'd give me all my money back plus 8% interest. I guess I'd been missold it. The bloke was very convincing.

CreatureRetorts Thu 02-May-13 09:15:25

Some people aren't financial literate. Some people are missold. Some people bury their heads in the sand.

AlfalfaMum Thu 02-May-13 09:20:06

But isn't interest only a last resort, like if your financial situation changed and you couldn't meet your repayments then you might go interest only until you find your feet again? A short-term solution to reduce your out-goings?
Or are there actually people on them from day one? confused

Dawndonna Thu 02-May-13 09:21:40

I changed my mortgage in 2004. Things were looking distinctly dodgy back then. I don't understand why people just continued with interest only. Personally I think they shouldn't be allowed to sell them.

yetanotherworry Thu 02-May-13 09:23:20

i know some people who have them. They are relying on the fact that house prices will go up to pay them off and give themselves a tidy profit. I'm not sure if this is a good strategy though. I suppose over 25 years it should be okay but what if you have to sell up early.

noddyholder Thu 02-May-13 09:23:46

I can see the tax payer bailing this out angry As if people didn't know! Did they not wonder why they were paying 500 a month while their neighbour was paying 1000? Short sighted and they should pay the price imo. Unfair on al the sensible people who borrowed what they could afford and paid accordingly.

PiratePanda Thu 02-May-13 09:25:52

Well, in our case, it's MILES cheaper than paying rent on an identical property. We'll just sell it if all our other devious plans don't come off. wink

noddyholder Thu 02-May-13 09:28:22

The thing is it is rent! You are renting from the bank and paying all the maintenance and upkeep and unless you have the capital at the end you don't own it! I know someone atm with 166k owing on a flat worth about 200. They are in their 60s and have 4 years to get it sorted Madness

Cantbelieveitsnotbutter Thu 02-May-13 09:32:09

Alot of these mortgages were taken out when house prices were jumping massively, my flat made 70k in 2 years. Ok that level was unsustainable and the reason we are in the shit we are in, but that sort of increase was the reason interest only mortgages really took off and alot of people are now stuck.

Anomaly Thu 02-May-13 09:37:13

We're interest only have been over the last few years covering 3 lots of maternity leave and childcare costs. We're now changing to repayment. Its served a purpose for us. No way we could rent the house we live in for the current interest payment of just £400 a month.

noddyholder Thu 02-May-13 09:37:51

I agree people thought prices would rise like that forever and they could just sell and release the gains and either pocket it or put it into another house. I know loads of people 'living the dream' in a house they don't own and can't afford but they 'look' like they are doing well.

LifeofPo Thu 02-May-13 09:40:30

Message withdrawn at poster's request.

CockyFox Thu 02-May-13 09:43:43

I was offered an interest only mortgage but refused it as my parents had explained about the shortfall in their endowment policy. Thankfully they found out about their shortfall in time to switch to a repayment mortgage over a shorter term and have recently paid it off. if they hadn't they would never have been abke to make the payments from their

RedPencils Thu 02-May-13 09:46:46

We took out an interest only mortgage with and endowment. There will be a huge shortfall so we've converted to part repayment , part interest only.

We were told that the endowment would pay the mortgage with money left over. The Financial adviser said he had 3, one to pay his mortgage off, one to buy his daughter a house and one for when he retired at 50.

I know a few people who invested in buy to let properties on interest only, they'll sell the house at the end of the term to pay off the mortgage. Seems a risky strategy now as house prices are static but 15 years ago mortgages were cheap and house prices were just starting to climb.

LunaticFringe Thu 02-May-13 09:47:50

Message withdrawn at poster's request.

LunaticFringe Thu 02-May-13 09:50:27

Message withdrawn at poster's request.

noddyholder Thu 02-May-13 09:58:52

The thing is there are so many people who will be in this predicament that bailing out could be necessary I for one will be livid if they get bailed at the expense of savers. Done properly IO with a failsafe repayment vehicle was fine but people used it as an excuse to borrow n=more and only looked at the monthly figure and not the big picture

yetanotherworry Thu 02-May-13 10:01:10

I remember being offered an endowment mortgage when I bought my first house. I remember reading that as their value depends on share prices, they could go up or down in value. This point stuck in my mind so I went for a repayment mortgage. Friends who bought at the same time took out an endowment mortgage but changed it 3 years later when it became obvious that they weren't as good as people made out. This was 1995-2000ish. The information was out there but I think people were happy to rely on share prices which seems crazy when you're talking such vast quantities of money, although I am risk-adverse.

Justaoneoff Thu 02-May-13 10:07:42

I don't understand why anyone thinks that people are going to need to be bailed out? If you get to the end of the term and don't have the money to pay for it, you are going to need to sell the asset. If you have had the property for a long time, the chances are there will be some profit. That puts them in no worse position than someone who has rented all along, in fact potentially better if the property is worth more than they owe.

What is astonishing is someone thinking their mortgage is going to magically disappear at the end of the loan agreement when they have been paying interest only.

Incidentally, borrowing what you can afford and paying accordingly goes out of the window when interest rates go sky high. Then what appeared to be comfortable may become impossible. Same as losing the job that paid the bills. You can't plan for everything...

noddyholder Thu 02-May-13 10:11:57

The reason people think that is because there are mutterings along those lines amongst economics buffs and the scale of the problem means they can't possibly all be re possessed. I hope they are forced to stick with the original terms but I wouldn't be surprised if teh govt comes up with some hairbrained scheme to deal with it all

WarmFuzzyFun Thu 02-May-13 10:14:47

I thought you were made to purchase an endowment at the same time as taking out the interest only. The endowment is what paid of the mortgage as long as it was performing in line with expectations, how else would the capital be repaid? confused

noddyholder Thu 02-May-13 10:16:36

Lots of mortgages in the boom didn't ask for proof of an endowment and selling up was an acceptable answer to the 'how will you pay it' question.It seems there are people who didn't know they would still owe £ although how they came to that conclusion I will never know.

TheSmallPrint Thu 02-May-13 10:20:03

When I took out my first mortgage I did it interest only but had a PEP runinning too. For the first few years it was fine and making money and then start losing money at an incredible rate. When it got to the level I had paid in I cashed it in and invested it elsewhere.

I moved to a repayment mortgage because I don't like the lack of assurance other investment vehicles make and now I'm starting to see the original loan reduce every year - it's quite nice to see.

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