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??

If you are not prepared to sell your house if necessary if rates go mental, an interest only mortgage is not for you.

I've only read the first page here, but the assumption that people have bug mortgaged, some on interest only, really annoys me.

We bought a very modest 2-bed property a little while before the peak, and after a while found ourselves in a position of having inadequate equity to remortgage at all, let alone a better rate. On the recommendation of our financial adviser we switched to interest only, until I go back to work FT at the latest.

Oh, and the reason we bought at all was the dearth of rental properties at high prices. I sometimes think of our current situation as renting, albeit from the bank. But we're still in a stronger position than if we'd never bought at all.

Of course no one knows what the future holds but looking over the last 50 years (twice the span of most mortgages) there have been substantial increases in the value of houses. I would be interested to see if anyone can find me a house that isn't worth substantially more than it was in 1985? I would also be interested to see these houses that have a lower value than they did in 1991 that someone on the thread claimsto know about .

I've only read the first page here, but the assumption that people have big mortgages, some on interest only, because they've overstretched themselves with large properties, really annoys me.

tarty - why does it annoy you? What's it got to do with you what sort of house others live in?

IO Mortgages are FINE
so long as you have a CLEAR PLAN for how the capital will be paid off
that does not include selling the house for a profit unless it was bought BEFORE 2003 (ish)

what is offensive is that banks have sold IO as a "low cost" option to low credit score borrowers without clearly explaining the above.

In my mortgage spreadsheet I have the month that interest rates rose to 15%
and I have my two endowments looking at 25 and 36% shortfalls respectively

Its fine as long as you are always aware the house needs to be sold at some point and if there is some equity in the house to repay it.If it cant be repaid and people are mindfull of this then so be it.

My io mortgage allowed me to remain in the family home with the children still attending their schools and to continue to work pt as well.

I am currently enjoying a long mat leave and we have space to continue to raise the final 2 whilst having a decent quality of life as well.

I had endowments but they were worthless in comparison to the amount i owe so i cashed them in and enjoyed them too

No Look, Tarty was saying that the assumption that people on IO must have huge mortgages and be living in large houses annoys her because it is often incorrect.

Doh! Thanks Ninky!

banana - there's not really much difference between saving and investing - it's just different degrees of risk and return.

I wrote that post before you had explained that you put the money you would use to save for/pay off the capital somewhere else - it sounded a bit like you were spending it.

yes, as many people here have pointed out if you want to put the money somewhere that gives you a return greater than the cost of the loan then that makes perfect sense. the big question is how certain that greater return is and how risky - a question that exists wherever you put your money.

I don't see why people with IO need to think about interest rates rises any more than people with repayment mortgages? Both have to pay the extra interest. Unless you fix - which we did, IO fixed rate for 10 years, so although we could be paying less at the moment it's better for us to be stable and know we can afford our payments until we can pay off the mortgage. Hardly throwing caution to the wind

Hatwoman No definitely not spending it! You are right though, there's a risk regardless of how to invest it. I'm not 100% comfortable with that but DH is so I let him take the drivers seat

We went interest only because we knew we were going to have DCs who would need to be in nursery. We didn't go the endowment route, we took out investments (which didn't do the job because the stock market has been pretty much crap since the late 90s) but as soon as the DCs were in school we started paying on the principal. We had a plan and it was sound, only then we lucked out - DH turned out to be owed about 10 years of back cost of living pay, which was about £10K and we put it all on the mortgage. That drove our payments down so far that we could overpay even more. We would have paid off 5 years early, only then MIL died and left us money so we are now mortgage-free.

We could not have afforded to buy if we had not gone this route - with a bit of sound financial planning it can work really well. No flashy lifestyles here though - our house is nice but ordinary.

I have had an interest only product for years but have regularly overpaid. My current rate is great - Bank of England base rate plus 0.99 so we are lucky to only be paying 1.49% interest I bet the Building Society are now wishing they never sold us this product 5 years ago!

Re. Moving house - we move next week in fact. For the first time we are paying interest only to fund a personal loan to pay for an extension. We plan to re-mortgage after to pay back the loan. If we don't get enough money then to repay the personal loan, we may be interest only for slightly longer than planned .

Personally I think going interest only as a short term solution for long term gain is great, also if you are having a baby or something. But to just do it to fund a lifestyle, without making provision to repay the capital, is madness IMO.

We might as well have a repayment of capital only at the moment because interest rates are so low!
I can't understand if people can only 'afford' an interest only now when rates go up, which they will, will they be able to even afford the interest only?

Mind you I am showing my age because I paid 8.5% for my first mortgage which was a good rate at the time!!

I paid 14.7% when I first took out my mortgage!!! I still pay the same amount as then , but most of it goes into a higher interest account to make me money/keep up with inflation/pay back the mortgage early - whilst the current 0.85% interest only mortgage gets paid (£32 per month).

TheSecondComing Thu 03-Nov-11 18:41:02
only read the first page, lots of smug dullards living within their meanszzz and waiting for their mates\families to be made homeless... nice!

I'm assuming that this is to myself and others on the first page. I am by no means generalising about all people with IO mortgages, as I said to Bogwobbit I was speaking about the problems in my particular friendship group and I am by no means waiting for them to be made homeless.

I think if you are clued up about how to make your money/investments work for you an IO mortgage can, of course, be a very good idea. However, I think that there is a good proportion of homeowners who don't really understand the risk they are taking.

If you understand the risk you are taking but choose to take it anyway because you have a plan then fair enough. The friends I was talking about are not in that category. They have no long term plan, they are just looking short term and I know because we have chatted about it and how it might work out.

YANBU. It surprises me too when people are prepared to live like this long term. I can understand it as a VERY temporary measure - eg if you finish paid maternity leave, and want to take a bit extra time off, or if you temporarily have astronomical childcare costs while waiting for one child to start school etc

But other than that its madness! Its like people who don't have any pension provision. What do they imagine is going to happen when they're older? I know people claim they cant afford these things, but frankly, with interest rates so low, if you can only afford interest only now, you;ll be thoroughly screwed when rates go up.

I think some people just bury their heads in the sand and assume the money will drop from some tree when theyre older.

callmemrs
but I have a strict repayment plan for my capital
it is just tied to other accounts than my mortgage one so I am in control of it
I'll be mortgage free within 4 years even if rates go up to 5% and the economy stays as crap as it is.

as I said - IO is FINE if people understand that the debt is just being "serviced" not "repaid"

and I do not have a pension.
too many people whose accounts I do have seen their pension pots trashed over the past 10 years

when my mortgage is repaid, all the cash that currently goes on that will be invested into relevant products
and I do not ever plan to retire anyway
many in my line of work keep pottering on into their 80's for a day a week when they have nothing better to do

Pensions are a complete and utter waste. Madness to pay into them IMO, not to NOT pay into them.

wildstrawberryplace, people on IO have to think about interest rates a bit more than people on repayment mortgages because even though they may both pay the same % rate of interest, a person on a repayment mortgage, depending on how long they've had the mortgage, will have reduced the initial loan amount and therefore can only be charged interest on the outstanding amount.

As time goes on, the person on repayment will be paying more off the capitol and less in interest, whereas the IO person will always be paying interest on the whole of the amount initially borrowed.

Truthfully, I can't afford a pension. I have a mortgage and 4 dc (and a cc debt). If I ever get my hands on any money, it will be used to fund my dc through university and hopefully reduce the debt they have as they begin adult life.

I have seen my parent's pensions utterly eroded. You see it time and time again, governments and private companies raiding the pension pots. People just don't have any faith in them any more because we perceive our governments and banks to be little more than thieves.