People with interest only mortgages - do they really not realise?(308 Posts)
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.
I've got 75% of my mortgage on repayment and the rest on IO with an ISA to pay it of. Because I have an excellent rate of 0.18% above Bank of England rate Ive halved the years to repay the larger part of the mortgage to make the most of the low rates. Can't see the problem myself.
Hey Noddy (met you at the brighton meet-up!), DH is a professional gambler. Successful. Noone will touch us and we have investigated every avenue. We both have spotless credit records too and can evidence DH"s income. We have now bought a little flat in cash as a btw and in six months we will be able to get a btl mortgage and take it from there.
Most IO mortgages allow you to pay off up to 15k per year as well.
Remember these are secured loans so no bailing out... you sell the asset.
The house we're currently renting has an interest only mortgage. There is no equity left in it because it was re-mortgaged early 2008, just before the financial crisis. Our landlord's (who is also my MIL) cunning plan was to transfer the mortgage over to us by first putting our names on it and then taking hers off - thus leaving us trying to find eight odd thousand pounds in just over 15 years.
We're not doing this btw. We're about to move in to our own home, with a standard repayment mortgage.
Anyone who claims they they don't know what is goin on is living in cloud cuckoo land/ head in the sand.
We all aprreciate that IO mortgages may have been mis-sold 10 or 20 years ago.
But for the last 13 years, we have been told about the problem. Again and again.
If you have recently taken one, because it suits you , post pregnancy, for a short period of time, till your childcare costs reduce, that I can TOTALLY understand.
But claiming ignorance on any other level, when it is all over the press, on money programmes, everywhere, begars belief.
Mine finishes in 3 years'. i expect the endowment/PEPs to pay some of the mortgage off but we overpay our mortgage every month and have an offset.
I hope to pay more off now that the interest rates will be lower (have been stuck in higher 5 year fix when things were different).
If we still owe some still it will be only a small amount and we are still in our forties so am not too worried
This is why me, DH and 2DDs live in a small 1.5 bed flat. I would rather live cosily in a flat we can afford a repayment mortgage on than have somewhere bigger and more comfortable but not be able to truly afford to live there. Other than exceptional circumstances IO is bonkers.
Yes - if we cant eventually pay off then will downsize to cover repayment. Would still be able to afford a repayment mortgage on reasonably sized family home should we need to do so, Interest we've been paying is less than monthly rental for equivalent would have been so could be much worse.
Out first mortgage was interest only with an endowment. That was in 1997. When we moved a few years later we changed to a repayment mortgage. There's no way the endowment was going to cover it, even back then.
We took out an interest only plus endowment policy on our first home in 1989. At that time, they were seriously missold. Promises of paying off your mortgage plus £££'s extra when they matured.
However, we've been receiving letters warning of the poor performance for approximately 10 years. I had no idea people were still being offered them well into the late 90's.
We moved house and effectively started again with a repayment mortgage. I will be retirement age before it gets paid off.
We kept on the endowment policy but it's no longer tied to the mortgage. It is looking like it will pay out about 50% of what our original house price was. It's going on student fees.
I work for a large bank and they are worried about the number of interest only mortgages on the mortgage book. It could be another banking crisis waiting to happen.
we are IO and overpay as and when suits us - have paid less interest as a result and are on track to be mortgage-free well before we would be on a repayment scheme. we did initially take it out though because interest rates were so high we couldn't afford repayment.
i agree with comments above that the risks are now very clear, and the problem is not IO mortgages but irresponsible borrowers.
We were interest only at first purely as we'd gone from renting to mortgage and wanted to be sure all the bills etc were sustainable. We changed to repayment in less than a year, and it only increased the monthly amount by about £50.
However, we were so young when we took it, the loan term was about 40 years and as such we are only paying off about £500 a year.
'This is why me, DH and 2DDs live in a small 1.5 bed flat. I would rather live cosily in a flat we can afford a repayment mortgage on than have somewhere bigger and more comfortable but not be able to truly afford to live there. '
Yet you, and people who rented because it made poor financial sense for them to so-called 'buy', may be called on to bail out those on IO mortgages who then have no way to pay up when the principal comes due.
Personally, I think there should be no bailout for this.
We had one when we started out - but we made maximum overpayments on it whenever we could. We made significant inroads on the capital without overstretching ourselves. Mind you, that was in 2004 when banks were falling over themselves to give you an attractive mortgage.
Having a mortgage you can comfortably afford, and making overpayments when you can, is more financially prudent than having a mortgage you can only just afford.
I agree there should be no bail out, we chose IO and up to us to sort out any future problems.
It was common knowledge that these were a bad idea by the late 90s.
Yes I agree about the bailout.
And now that I think about it, ours was IO for the first three years, then repayment. IIRC we shaved six or so years off the term in those three years, by overpaying what felt like small sums.
Iinterest only mortgages can be very sensible indeed if hiu are sensible. We have one and pay monthly amounts into our choice of investments that we can pick and choose to get the best return rather than the mortgage companies choice. We then pay off large chunks of mortgage every 3 years or so reducing our mortgage repayments and therefore increasing the amount we can afford to pay into our own investments. We are not all burying our heads in the sand!
We have been on a fantatic IO mortgage rate since 2007 and is for the life of the mortgage, about another 12 years to run. It tracks the base rate. We have got quite a bit of equity
It works for us because (1) to rent a similar house would cost us anout £1800 extra to rent per month (2) we can overpay - and we do overpay every month in fact - as much or as little as want, there are no restrictions (3) at the moment all our spare money goes on school fees. As soon as they stop we'll throw extra money at the mortgage and will be close to paying off the debt by the end of the term (4) if we are unable to clear the mortgage when it finishes, the kids should be off our hands, after growing up in a lovely family home, and we will be able to sell and downsize.
It works for us.
I do agree though that they were sold to people who are too naive to understand the implication of having an IO mortgage. And that strict vetting should be in place in the future.
How is it different to renting or living in a council house all your life? I think most of the 'shocked at the irresponsibility' posters have never had to pay through the eyeballs in rent... IO seems like a sensible alternative.
Exactly- its a v British obsession this need to be a homeowner, in many other countries most people aren't and manage fine.
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