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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

to think that if you took out an interest only mortgage....

194 replies

CherylWillBounceBack · 31/10/2012 17:19

....that the clue to how the product worked was in the title.

www.dailymail.co.uk/money/mortgageshome/article-2225427/Over-50s-mortgage-trap-cost-home.html

To be clear I'm not attacking those who fell foul of endowment policies, but those who have either taken on more than they could have ever afforded as a repayment scheme, and even more at those that have released equity from these homes to fund a 'lifestyle'. It makes me absolutely irate as a saver who has seen people bidding up the property market to insane levels using borrowed money which it turns out they had no vehicle in place to pay back. They are now claiming they didn't understand what they had got themselves into.

They are not victims of anything other than greed and stupidity, and with the media coverage they've been getting over the last few weeks, it looks like we are now we are heading towards another bailout of the profligate, at the expense of those who saw this coming years ago and have seen their savings decimated due to inflation and low interest rates.

Disclaimer, I don't own a house, I stayed out and attempted to save up for one outright only to see the prices spiral out of control and then be propped up by all manner of schemes for those who have overstretched.

To quote Paul Daniels, if there's another bailout of either the banks or those who have been feckless, I'm leaving the country.

OP posts:
bruffin · 31/10/2012 19:34

The article said that they had bought an endowment. If they hadn't been informed that it was under performing then they are entitled to compensation.
I was given compensation because all the letters telling me it was underperforming were sent to the wrong address.

wintersnight · 31/10/2012 19:39

I think this article was probably written by a plant from the Socialist Worker stirring up unrest.

AnneElliott · 31/10/2012 19:40

When we bought our first home in 1998 the advisor tried so hard to sell us an endowment, promising we would clear the mortgage with money to spare. Strangely enough he wouldn't put that particular claim in writing. We went got a repayment. Even at 19 I could see that you may not pay it off with an endowment and therefore repayment wad the risk free option. I am surprised that the people in the article couldn't see this themselves. I don't think they should be bailed out.

My brother has an IO mortgage and nothing in place to repay the capital. He didn't want to rent as that wastes money but he can't see that he is only tenting from the bank.

TalkinPeace2 · 31/10/2012 19:53

AnneElliott
When bought our houses in 1987 and then 1989 they DID put it in writing.
Fat lot of good that was when the cheque arrived a couple of months back
half of what they had promised and 33% short of what we had then needed.

Bogeyface · 31/10/2012 19:55

Can you not claim compensation for that Talkin?

TalkinPeace2 · 31/10/2012 20:02

nope, we are a couple so the life insurance part was essential and we had no other - and of course the life insurance WOULD have covered the mortgage
I tried Grin

MamaBear17 · 31/10/2012 20:14

I took out an interest only mortgage at 22 as I was being pressured to 'get on the property ladder' and it was the only way I could afford to do so. After the term expired I went onto a repayment/interest mortgage but unfortunately for me the ratio is crappy and it means that until the market picks up we are stuck in our 2 bed semi for a little longer than we had hoped. I didn't know that the market would crash so spectacularly and that it would be difficult to raise enough money for a deposit for the next house, but I made my bed and must now slumber in it!

mutny · 31/10/2012 20:19

There's also a lot of self certified mortgages where people just said what they earnt and were given a mortgage.

My first mortgage was self cert. But i was sensible enough not to lie and got a 90% mortgage. I was 19 and had thought it out, rather than just jump in.

A friend got a self cert 125% mortgage and within a year had the house repossessed. She was stupid to do it but I also can't believe the banks would lend a 20 year old 125%, especially based on self cert.

I think self cert barely exists though now.

mutny · 31/10/2012 20:20

Sorry this was back in 2002/2003. not recently.

Itsjustafleshwound · 31/10/2012 20:27

There was some silly figure saying that of the endowments that have matured this year, only a small % (like 3 or 4) have actually met their target.

I think it is the old bug bear of stupid people selling the desperate worthless products they don't/can't understand. The fact that the salesman and everyone else has creamed off their commissions and fees and left people high and dry.

The only person interested in you is yourself - seeking compensation for stupidity doesn't wash

Viperidae · 31/10/2012 20:31

When we realised that endowments may not be likely to cover the mortgage we switched to repayment but kept the endowments going (luckily our salaries had gone up by this point) which gave us a nice little bonus.

Think it's an interesting approach to have an interest only mortgage and put the difference in an ISA, I've never thought of that.

Piffpaffpoff · 31/10/2012 20:34

A very long time ago (late 80's/early 90's) my job was to do the calculations for surrender values and final maturity values on endowments. I had a massive desktop calculator and a propelling pencil for writing out the very hard sums longhand. No computers!! [hshock] Anyway, having seen how much people were getting over and above the mortgage value, I happily took out an endowment and interest only mortgage. However, next time I moved house I switched to a repayment mortgage as i didn't like the uncertainty.

As everyone else has said, the clue is in the name. You'd have to be pretty silly not to understand the implications of it.

noddyholder · 31/10/2012 20:36

Soooooo many people have no repayment vehicle.

TalkinPeace2 · 31/10/2012 20:36

itsjustafleshwound
having had one mature this year, I'd be surprised if ANY hit target
ours has been off for years
but when I checked their numbers against my actuaral spreadsheet I made them cough up an extra £200 as they had miscalculated the number of months of bonus on bonus [hgrin]

viperidae
just make sure its not a shares ISA ....

ShutTheFrontDoor · 31/10/2012 20:59

I have an interest only mortgage but have massively overpaid and don't have much left to pay at all.
Would i be better cashing in my endowment to pay the rest of my mortgage off or wait till it matures

TalkinPeace2 · 31/10/2012 21:02

which company is it with and how many years does it have to run and how much do you pay a month (serious question - I'll plug it into my spreadsheet)

whistlestopcafe · 31/10/2012 21:11

We had an interest only mortgage for a while. We didn't opt for it out of greed or stupidity, we did it because we were tied in to a very expensive rate and our childcare costs were crippling us. I regret it because we could have reduced our mortgage by thousands if we had stayed with a repayment mortgage but needs must...

We knew exactly what we were getting into and it was a short term measure. I think some people, particularly people who are closer to retirement age and therefore need to have a contingency plan for paying off their mortgage were burying their heads in the sand and hoping for a lottery win.

I do however have some sympathy for them, the recession has hit most people hard and we don't know what circumstances lead to individuals making unwise financial decisions.

ShutTheFrontDoor · 31/10/2012 21:15

Ooh Talkinpeace thanks, ill get back to you if that's ok (in bed at the mo) but I would really appreciate your advice.

TalkinPeace2 · 31/10/2012 21:16

:-)
tell me the start date, the company, the monthly premium, if possible the basic sum assured and I can tell you what it will pay out - to within £200 :-)

that applies to anybody who wants to know BTW - the spreadsheet is already written and I'm still using it for my other policy

Mandy2003 · 31/10/2012 21:28

I remember sitting down with a mortgage agent in the 1980s and getting an illustration of an endowment mortgage plan. I don't remember the 25 year growth figure but I do remember telling him to bugger off, I didn't think that figure was possible.

2 years ago I took out an interest-only on a 2 bedroom flat for 15 years. If I do not (due to care home fees or anything like that) receive an inheritance to pay it off (am an only child) then I know that I will sell. But that's fine because DS will have left home by then and I can use the equity to pay off the mortgage and downsize to a 1 bed.

The clue IS in the name, how can anyone that didn't fall for the endowment scam claim to have been mis-sold anything? And due to this bleating about mis-selling it means that building societies have had to cover their backs and stop offering a perfectly sensible and affordable product to responsible people. [hangry]

MsVestibule · 31/10/2012 21:32

IO mortgages do have their place and as long as the mortgagee has a good deposit and understands the risks, I don't see the problem.

My DH and I took out an IO mortgage in 2010 and have no repayment vehicle in place. Our DCs are young and we wanted to buy our long term family home now. We had a large deposit (could have bought a house outright if we'd wanted to) but weren't in a position to buy the one we wanted using a repayment mortgage and maintain a reasonable standard of living. Once both DCs are at school full time, I will probably work part time and we may then make some overpayments.

If the worst comes to the worse and in 25 years we haven't repaid the capital, we'll sell our house, pay off the mortgage and use the equity to buy a smaller house. I certainly won't be whining to the DM about receiving bad advice - we've considered the risks/benefits and are doing what works for us.

noddyholder · 31/10/2012 21:42

I know someone who thought that! The work thing never happened and now they are 6 years away and no way can they get the money together.Relying on selling it is risky.

MsVestibule · 31/10/2012 21:49

Why is relying on selling it risky? If I was in your friend's position, I'd be putting it on the market in the next year or so, then buying a smaller house with the equity. Even if it takes 5 years to sell, it will happen eventually.

And in our case, if it doesn't sell (who knows what the market will be like in 25 years?), one of us will just have to work/pay it out of our pensions until it does. People who never buy have to pay housing costs all their lives, so it would be the same thing.

LivingThings · 31/10/2012 21:50

Re DM - Maybe the banks pught to do some IQ checks prior to lending as Clearly some people are too stupid to have a mortgage.

Bogeyface · 31/10/2012 21:51

But MsV you are assuming that by then you would a) be working (or one of you would b) be capable of working, not incapacitated by reason of illness or disability and c) able to get a repayment mortgage to cover the outstanding capital.

It is a bit risky tbh, I would have waited for the "forever" home a few more years.

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