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AIBU?

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Original poster

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

245 replies

mrsnw · 03/11/2011 14:41

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??

OP posts:
Wormshuffler · 03/11/2011 16:56

Isn't that just renting a house off the bank Confused ? We recently paid off a chunk of our mortgage and I was most disappointed when I worked out that it only actually saves us £800 in interest payments over the remaining term . I can't wait to get it paid off.

noddyholder · 03/11/2011 16:56

If you have a 400k house and are IO and need to sell and prices have fallen you will owe the bank what you borrowed plus the short fall. The of course prices will rise is a very out dated way of thinking. The people who have investments are a whole other matter they are just using other means to accumulate the capital but you need to be smart to do this and more importantly solvent.

TalkinPeace2 · 03/11/2011 16:56

Discounting major event future cashflows is not a good model
www.economist.com/node/21536627

noddyholder · 03/11/2011 16:57

so banana how many of the properties have you paid off?

Lookattheears · 03/11/2011 16:58

How is it renting? did you read what whatmeworrywrote?
carrie a mortgage is only as big as your affordability. If you earn very little, a large mortgage will seem terrifying, if you earn very well, it won't.

ByTheWay1 · 03/11/2011 16:58

Our mortgage is interest only. The rate we pay is currently 0.85% APR. It is a tracker +0.35% rate. (Yes we were very very lucky!!) We save the equivalent to a repayment mortgage in a monthly payment high interest account gaining 4.35% APR. We will save 4.5 years of interest payments this way.

banana87 · 03/11/2011 16:59

All the properties we own have only been bought in the last 5 years. All of them are rented out except the one we live in. Why is that relevant?

noddyholder · 03/11/2011 16:59

I really hope they start taxing buy to let when I read this.

Lookattheears · 03/11/2011 17:00

noddyholder, you have to put down a pretty hefty deposit these days to borrow that kind of money.
And you usually get that hefty deposit from equity.
We always have, even with IO.

flipandfill · 03/11/2011 17:01

I think IO repayments suit some people- as people here have shown, but it does concern me that people don't really understand what they are getting themselves into and do not understand that it is beneficial to have equity in the house you live in.

A friend of ours is on IO and didn't understand that his mortgage didn't just run and run- he honestly didn't realise he would have to pay back that money one day.

We are overpaying our mortgage- and making short term sacrfices but in the long term it will save us 54k in interest repayments. Owch.

banana87 · 03/11/2011 17:02

Buy to let is taxed. You pay a higher mortgage and interest rate, more up front costs, and you are taxed 30% of the profit after £10,000 (each) when you sell it.

Lookattheears · 03/11/2011 17:02

I really hope they start taxing buy to let when I read this.

Why?

CogitoErgoSometimes · 03/11/2011 17:03

YANBU to be surprised OP. If you don't manage your finances that way, why would you know so many others did? Six or seven years ago when I was sorting out a new mortgage, the adviser I was using asked if I'd like to have it cover 'all my other debts' as well. When I said I didn't have any other debts he didn't believe me. Apparently... and this is about 2005 remember... the average amount a typical household owed in CCs, HP and loans was £20,000. That figure surprised me then the way the interest-only thing has surprised you now.... and makes sense of why people who are outwardly on good incomes often complain that they don't have any money. Financing debt is an expensive business.

ChippingInAutumnLover · 03/11/2011 17:05

I think it's unpleasant & uncalled for to make disparaging comments about people with IO mortgages.

There are lots of very good reasons people are on IO mortgages (not so they can go to the Maldives!!). I think they are fine if you go into it understanding what it means long term.

An example - my friend is on an IO mtge. She pays £250pm IO. To rent her flat (very small flat, couldn't get a cheaper one around here) would cost her £600+ pm. A room in a shared house here costs a minimum of £400pm. She has her privacy & she can decorate it how she likes etc She hopes her business will improve greatly and that she will be able to make lump sum payments so that by the time the mortgage is up (in 23 years) it's paid off and she owns it (if not before then) - but even if she doesn't and she was still to owe what she borrowed she could sell it and repay the mortgage but even if the very worst happens and it was repossed at the end of it - she's still financially much better off than someone who has rented all their lives. She hasn't had to worry about being given notice or anything like that. Renting from the bank isn't always a bad idea and in fact, often a better idea, than renting from a landlord.

noddyholder · 03/11/2011 17:06

I personally think buy to let landlords have stopped your average person being able to buy a decent home in their own area. Eg here there are many rental student houses which are let and valued according to the rooms available per student. This has led to values being over inflated in these houses as the landlords can cover them with rents but an average family can't buy them. I have a lot of landlords that I know and several couldn't keep the house at all if the rooms weren't all filled. It is daft. (hiding thread now!)

LieInsAreRarerThanTigers · 03/11/2011 17:07

We did it because we wanted to keep the house we moved out of and buy-to-let - hoping that as a long-term investment that would pay off both mortgages (one big one small) and leave us in profit. Alternative was to sell in order to buy on a repayment mortgage. We also both have elderly parents, so are likely to inherit some chunks on one side or the other before the mortgage term.
However, things now complicated by marriage break-up so Confused

Lookattheears · 03/11/2011 17:07

The mortgage can always be paid off after death anyway, there is no imperative to pay it off during your lifetime. Just saying!

LieInsAreRarerThanTigers · 03/11/2011 17:08

Sorry I meant 'keep the house we moved out of to rent it out'

Lookattheears · 03/11/2011 17:09

noddy all sorts of things have caused house price rises. Buy to let is only one small part.

banana87 · 03/11/2011 17:09

Chipping Even if your friend didn't have the money, isn't getting another mortgage an option? I always thought it was. So she shouldn't even have to worry about being repossed?

BiscuitNibbler · 03/11/2011 17:09

Whatmeworry is assuming that house prices and wages will increase based on very short-term historical data. There is absolutely no guarantee that this will happen again in the relatively short time-span of a mortgage, and the even shorter timespan between buying and wishing to sell. A lot of people are currently in a situation of having to accept pay cuts or 0% annual pay reviews.

If you need to see during a dip then you will be left in negative equity. I'm stunned the very recent examples of this are being ignored.

BiscuitNibbler · 03/11/2011 17:10

If you need to sell

AlpinePony · 03/11/2011 17:10

I have read sad stories of people who come to sell up/move on only to discover that 4 years of payments to the bank has reduced their debt by zero. :(

LieInsAreRarerThanTigers · 03/11/2011 17:11

Re: taxing buy to let, you also pay tax on the income! Oh but noddy is gone...

ledkr · 03/11/2011 17:14

chippingin thats true. I went to interest only when my h left me to raise his 4 kids alone.I only had one wage and needed the house obviously so i went to io knowing full well that one day i would have to sell the house to repay the capital.
I cant see whats wrong with it tbh,i will not need a 4 bedroom house forever and will sell it and use the profit to be mortgage free in a smaller property.
It seems a good plan nd at the moment i can enjoy the children whilst working pt as the re payments are low.