To want to pay off our mortgage

There is nothing in what you’ve posted to suggest wealthy people downsize to pay off the mortgage though? Have multi-million mortgages, yes, downsize to pay them off, no.

The whole point is that they have more than enough money to pay the mortgage, they just invest it somewhere they get a higher return than the mortgage interest rate. No downsizing required.

Why do you keep posting rhe same stuff? No one is disagreeing with you it is financially beneficial, i am disagreeing they need to sell their houses and use rhe equity to pay the mortgage as you wrote that.

evidence that.

I’m far too risk-averse to ever go interest only, although they were still quite common when I got my first mortgage in 2005 and a few of my friends had them.

The penny didn’t drop with me about overpaying until quite late and we started to doing it seriously during lockdown when I’d had a decent salary boost and nothing to spend the surplus on, so started overpaying and stashing money in various savings pots.

it’s amazing how quickly overpaying can bring the capital down and wish we’d started earlier, but we now only owe 5 figures (yay) and - assuming I can get back into decently paid work (am currently between jobs) - would hope to be mortgage free in 3 years.

as @Ginmonkeyagain said, overpayments also basically offset the pain of the interest rate rise. It was like we’d bought out that risk.

Again:

you wrote to pay it off when they downsize, yes wealthy individuals take mortgages to ensure they can invest their capital elsewhere in a higher interest rate than they pay on the mortgage, think Harry and Megan.

they don’t then have to sell their house and downsize to pay it off.

It makes perfect sense @Theonewhogotaway

It’s really not. You’d need to provide stats for that. Wealthy and downsizing to pay your mortgage is a complete contradiction in terms,

I hope they don’t reduce it, but it will significantly impact people like the op , if they’ve used their pension lump sum as a repayment vehicle for their interest only mortgage. It’s a foolish way to do it in the first place, due to the annual reduction associated with a lump sum payment, far outweighing any benefits from tax efficiency, it only works if you don’t live long.

Apparently it's quite common for wealthy people to have interest only mortgages for massive houses and just pay it off when they downsize.

Good point but there is article in the Telegraph stating that if they reduce tax free lump sum many will simply stop paying into pensions above a certain amount. I for one will take much overdue financial advice as a NHS pension contributor and could well be at the level now where I no longer need to pay in towards the NHS pension. These payments are not held in a fund but actually go towards current pensioners payments.

Could you sell and downsize?

It wasn’t a second mortgage, it was his first one. The house he lived in belonged to his then partner. He wasn’t on the mortgage or deeds. I can see I wasn’t quite accurate when describing it as “his” house.

Based on his current dancing prowess, I don’t think he was an exotic dancer in South Florida, or anywhere else.

Self-cert interest-only second-mortgage..

He wasn't an exotic dancer in South Florida by any chance?

I was actually working in conveyancing at the end of the 90s (awful job - I’ve never dealt with so many rude and aggressive people and I moved on to working with serious criminals!).

I clearly remember that on interest only mortgages we’d get people to sign documents allocating endowment policies to the mortgage lenders. In retrospect endowment shortfalls were a ticking time bomb but those people thought and were advised they had a repayment vehicle.

Interest only with no repayment vehicle simply didn’t happen, at least not that I can remember.

You need to switch the mortgage to a repayment and overpay significant amounts of monies.

Plus very possibly you will have to downsize and/or move to a cheaper area and in doing so repay the mortgage loan and only buy with whatever uplift in property value you have achieved.

The ability to take out an interest-only mortgage without demonstrating a solid plan to pay it off was a bonkers decision by lenders. But it's been self-reinforcing due to the massive upward pressure it put on property prices and paper value appreciation

They weren’t bonkers if they were used properly.

My husband used a self certified interest only mortgage to buy the house we are in now before he had sold his previous one. He didn’t have to prove anything.

It was a rapidly rising market so buying before selling made sense.

II’m also 50. They may have existed but interest only or endowment mortgages weren’t on the table when I was buying my first house in my mid 20s. Even small houses were way more than £25k then. Four or five times that.

I was also a bit naive because I thought mortgage terms had to be 25 years.

The op I assume has thrown her pension at this, with no repayment plan the only way you can get an interest only mortgage is to promise the lender a lump sum from your pension.

I'm 50 and took out my first mortgage about the same time. Always repayment.

The alternative to a repayment mortgage then was not an interest-only mortgage, it was an endowment mortgage and you were required to take out an endowment policy to ensure they were paid off. Endowments had been popular since the 1980s because were supported through favourable tax breaks, and there was a huge scandal developing in the 1990s about their mis-selling. I can remember people being sent very severe warning letters because the risk of not being able to pay-off the capital at the end of the term was considered such a high risk.

The ability to take out an interest-only mortgage without demonstrating a solid plan to pay it off was a bonkers decision by lenders. But it's been self-reinforcing due to the massive upward pressure it put on property prices and paper value appreciation.

Much depends on how old the OP is. Her children are in secondary school. If she's in her late 40s then it was incredibly common to have an interest only mortgage when we first started out on the property ladder. I'm 49 - I bought my first house at 23 when you could buy a house for £25k. I've only ever had interest only mortgages. Initially people used to get them with an endowment policy but that doesn't happen nowadays. It then became quite common to overpay. Interest rates then crashed and so capital repayment mortgages became a lot more affordable so there was no need really to look at interest only and they became far less common.

The issue of whether she's financially competent is a different one. If she is in her late 40s with no repayment vehicle at all and no plan for paying off her mortgage then it seems like she will probably need to sell her house and downsize at the point at which the mortgage term is due to end (which seems potentially possible if she has a large amount of equity) or remortage on a capital repayment basis (which will only be possible if she can demonstrate she can meet the repayments so looks unlikely on the basis of their current set up) or do something to earn more money.

OP you need as a mater of urgency to look at your outgoings and start paying off your massive debt.

Not really, with inflation and wages rises men the original debt has shrunk and the monthly mortgage interest bill is likely to be WAY lower than renting the equivalent, plus the security verses renting is not comparable.

But most people do have other investments to pay off the debt at some point if they choose an interest mortgage.

My mate has one, she chose to live in a bigger house and put her child through private school rather than pay down the mortgage. Hasn't really got a plan to pay it off, but also happy to downsize/move abroad when the children leave home if that's what's required.

Thing is it’s really hard to get an interest only mortgage now. You need to prove you can pay it back,

op did you promise to chuck your pension at it? 😱

She apologises for coming across as privileged.

I don't think "privileged" is the word most of us are thinking of.

She appears to think most people just rely on inheritance / gifts from family to pay off their mortgage rather than just paying off part of the capital sum each month. She wants to know the super secret method used by people to pay off their mortgage when they don’t have family help

I was also surprised by this, she appears to think interest only is the norm. And folks have some secret to paying the mortgage off.

there are 12.5 million mortgages in the uk, of which approximately 5 percent are interest only in 23 and that’s due to fall by the end of 24 by nearly 30 percent., 97 percent of people will have a repayment mortgage by the end of this year.

people who take interest only do so mainly for buy to let, or due to not being able to afford repayment, or due to being financially savvy, with strong investments and paying off lump sums annually.

there will be very few people like the op who chose to just splurge the money and then wonder how folks pay it off. Which is mind boggling.

You “do it” by spending a lot less, and paying off a lot more!