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

[minibmw2010]

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]

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]

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]

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

[AlfalfaMum]

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?

[Dawndonna]

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]

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]

I can see the tax payer bailing this out 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]

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.

[noddyholder]

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]

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]

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]

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.

[CockyFox]

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
pensions.

[RedPencils]

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.

[noddyholder]

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]

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]

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]

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]

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?

[noddyholder]

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]

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.

[Imnotaslimjim]

we've just changed back to repayment after 2 years at interest only. We had to switch, as our incomings just weren't covering the outgoings. We're much more financially stable now

I can't understand why people stay on them longterm, unless they're in VivaLeBeaver'ssituation and have someone telling them its all ok