to be surprised by the number of friends on interest only mortgages?

[mrsnw]

We are thinking of moving next year so conversation has turned towards interest rates and mortgages. We live a an affulent area of Herts and many people hold down good jobs. I know everyone situation is different and many of the mums are SAHM. Just guess am suprised. Oh and would you move giving the state of the eco??

Also, for the first time ever last month, my mortgage provider wrote to us warning about the interest only part of our mortgage and telling us that we should ensure that we had a plan to pay it off.

I think its relief that you are not forced to stick to an endowent to pay off a mortgage. You need a plan in place for paying off the captial, but it doesn't necessarily need to be an endowment. It can be ISAs, a rental property or savings or shares.

I suppose its a balance of risk. It would be pretty grim to be made homeless in retirement.

I think it's a valuable concession to enable people to keep their homes if things go wrong, but I'm very uneasy about it as a lifestyle choice. An offset seems like a slightly different kettle of fish; I've got self-employed friends who find it works well as a way of saving for tax, and you always oversave, so the excess doesn't all have to come out again.

I think house prices will correct sharply over the next few years and I think the boom cycles we have seen will be discouraged as that is what has caused a lot of the financial problems worldwide. Expecting to fund your childrens uni or any other big financial requirement is unwise as you just don't know what is coming. I personally think lending will tighten gradually over the next 10 years If you read the economist regularly you will see that most economists do think that will be the case. Be careful!

YABU There's plenty of sound reasons to have an interest only mortgage, just like it might be appropriate to have no mortgage and just rent properties instead.

An interest only mortgage is just you renting the money instead of the properties and you therefore run the risk of a loss when you pay the money back at the chance of a gain.

I find it so odd as well. I have a friend who has a rental property on IO and the rent doesn't quite cover the mortgage even then. When asked about it, she says it is a long term investment. I don't understand it. I guess she's banking on house prices shooting up, but this seems beyond foolish to me.

Agree with IO on your house can be a good idea in the short term if you are re-training or similar, but can't understand people who have no plan to pay it back. It's so much worse than renting - you are responsible for all the maintenance/building cover etc.

house prices have already had a huge fall. I doult they will fall much further and real terms house prices are falling because inflatiion rates are 5% and house prices are not increasing.

There have been lots of attempts to prevent boom and bust and none of them have ever worked. This recession won't last forever.

I disagree.

I completely disagree. I think more and more people will not seeing buying a home as a goal at all.

Interest rates will have to rise evenutally.

I didn't know they still existed!

But I can see how they can be a good option as a short term option if you lose your job or maybe while helping dc through uni, etc.

Unemployment hasn't peaked yet. Interest rates will have to rise if the £ is to have any clout globally. The only reason prices didn't really fall in 2005 and 2007 is because they lowered rates to a silly level and printed money(QE). There are no 1st time buyers and mortgage lending is getting tighter as no bank wants to be that exposed again. I don't think prices will boom again in our life time they will correct and rise with inflation like they used to hopefully. I agree buying a house will not be an ambition for future generations the way it has been for us.

Interest only mortgages are only fab now, but those with repayment mortgages will have the last laugh in 20 years time when they are mortgage free.

We overpay our mortgage, and live within our means of whats left. If we paid interest only we would have an extra £1000 a month to play with. Tempting! But when we see we only have 60k left to pay until we own our beautiful house outright it makes it worth the hard work. Plus we are only 25 and 27 which means we can look forward to a more 'affluent lifestyle' when we are in our 30s!

We do the opposite thing of interest only and overpay the mortgage a little bit each month. We will get less interest on savings than what we pay out in mortgage interest, so it makes financial sense to lose the debt more quickly and be mortgage free 7-8 years early.

IO without a repayment plan sounds very expensive and risky to me, I wonder what will happen in a few decades when they all come to an end and banks start to request their money back. How many of those people will have sufficient funds to pay it back?

Ciske - They won't, but they will have lots of photos of holidays in the Maldives to show the bank instead!

You are both right I am a lot older and chose to over pay and renovate to clear the mortgage and enable us to save. It is hugely comforting to know we are debt free in mid 40s.

A few of our mates are relying on the inheritance they will get from their parents to pay off the balance at the end of term.
But yes I'm surprised by this too. I can understand the need to do it for a few years (we did whilst I had children and DH had a new job) but moved to repayment as soon as we could.

LondonToEdinburghExpress you took the words right out of my mouth my snobby sil looks down her nose because we live in a council home

She is seemly well off one day over dinner kind of scoffed at te fact that we don't and never will own our own home I told promptly told her well nor will you

Their mortgage is less than what we pay in council rent and at the end they will not own the house and will not have any money for a deposit

What the frig is the point in that

StringCheese Yes, one of my friends said that when she inherits from her parents (split between the siblings anyway) that she will be able to pay off a big chunk of mortgage but that assumes that the parents family home won't have to be sold to pay for their care when they are elderly which is very likely IMO, given what I know of the system.

I think she is banking on a big payout in 25 years but it may never come.

Well we have an interest only mortgage and as far as I can see its the only way forward. Our mortgage is over 25 years and we will definitely not be living in the same house for that long...I suppose we have high hopes of living in a 5 bed detatched one day! DH sees it as a waste of money to pay off a mortgage on a place we will not be in in 25 years time, so we don't. I suppose thats another way of looking at it. I don't think its a bad thing.

Some big assumptions here about people with IO mortgages. I have one but pay heavy one off payments when I get my bonus, so actually will be mortgage free in 10 yrs...no need for the smugness from those with repayment mortgages. Not everyone goes into interest only naively.

banana surely that only works if prices rise?

Coraltoes your method is very wise but actually very rare according to official figures.

Doesn't surprise me at all.

Much of the boom of the last ten years was fuelled by lax lending standards and interest only mortgages. People fuelled their lifestyle on too much borrowed money.

You would be even more surprised how many people have a good job, outwardly wealthy lifestyle and huge unpaid creidt card bills, catalogues, overdrafts and car loans they can barely afford. It works until they lose their job and they can't meet their next monthly interest payment.

But banana87, whether you pay off you mortgage whilst you're in this house or the next, it will just get paid off sooner. Finishing you mortgage in one house does not mean you must stay there forever! It just means less needs to be borrowed when the time comes to 'up-size.'