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

[CherylWillBounceBack]

....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.

I know for a fact that there are a lot of people out there in the over 50 age group who have every intention of borrowing as much money as they can and never paying it back.

They intend to default or die as a way of avoiding repayment and who can blame them? The banks got a bailout and many people strongly feel they should get one as well.

Think it's pretty clear from the title "interest only" idiots.

And haha at a million pound house in harpenden! I'm noticing many are from Herts which just shows they are as greedy as I always thought

morebeta - I can blame them, and the banks. Where's my bailout? If the profligate are getting one, I figure I'm personally owed 10's of thousands in savings interest thanks to the manipulation of the base rate and QE, and a 3 bedroom house seeing as I decided to save up for it and was punished by every tom, dick and harry who couldn't be bothered to save borrowing negligently to offer stupid amounts of money for a pile of bricks that sold two years before for half the price throughout the first decade of this century.

I'm not gonna get one though am I, because saving and living within your means is evil in the eyes of the powers that be.

The angst in that article is astounding - do we pay off the mortgage shortfall and compromise the children's inheritance? Or do we accept that if we don't pay the shortfall the house doesn't actually belong to us?
That they imagine there is actually a choice is breathtaking.

My XBIL tried to convince XH and I that an io mortgage was the way to go as after 25 years, the amount owing would be payable by a credit card

Whole family are financial fuckwits tbh, best off out

Cheryl - thats exactly how I feel. I have never bought a house and refuse to load myself with debt to do so. Just like you, I have savings and no debt.

I have to admit though, over the last decade its been hard not feel like a total mug for not joining in. Therefore I have no sympathy whatsoever for anyone in that article.

Bogeyface But surely when anybody takes out a mortgage, they assume they'll continue working until it's paid off? It doesn't always happen, but most of make financial decisions based on the assumption that we will be. And why would we need to get a repayment mortgage to cover the outstanding capital? We'd just continue with the IO mortgage. Please tell me if I've missed something vital there, though!

I will never put myself in a position where I can't pay my mortgage - the repayments are not huge (currently) and my reasonably substantial savings are solely for making the mortgage payments if we are for some reason unable to pay them out of income. And as I've mentioned, if we are in any of the scenarios you've mentioned, we'd sell the house.

Most house purchases have an element of risk attached to them. Under our particular circumstances, they are no riskier than most. BTW, we do fully intend to pay the capital off in the next 25 years, but have a plan in place should that not happen.

A few years ago, we decided to fix our interest rate, and were not allowed to change our mortgage conditions, in any way, without changing to a repayment mortgage. (In fact, we intended to do that anyway, at the same time.)

whereas I have my whole mortgage, interest only, in two tracker accounts
BUT
have a spreadsheet that tells me to the day of the week when the balance will reach zero because of my regular overpayments.
THEN I fill up ours and the childrens' ISA accounts each year

morebeta - yup, from time to time I feel like a mug. Then I remember I'm not in debt to anyone and I feel better again. But I am completely serious on finding somewhere else to live if this state of affairs is allowed to continue for much longer - it's only my family keeping me here, but I'll encourage them to sell up and get the hell out of here too, taking a significant future revenue stream for the inland revenue with us. The entire system - employment, pensions, housing and education has been contorted to the point of being complete nonsense. We don't actually have a political system that allows alternative viewpoints to be heard, and a complicit media does it's best to maintain that.

God knows where in the world actually does operate in a sane manner though. I'm thinking maybe Antarctica.

YANBU, it really grates when people refuse to take responsibility for their own greed and/or stupidity. IO mortgages are very useful in some circumstances but people who take them out so they have low monthly payments and make no plans to pay off the capital deserve to lose the lot.

The endowment I took out to cover the mortgage on my first property is well short of the amount that would be needed to repay the loan. Thankfully, I paid it off may years ago.

Every year the warning letter lands on my doorstep I think "Thank fuck I don't need it to pay the loan"

Good grief. We have an interest-only mortgage, but the bank was very clear that we need to have a vehicle of repayment in place. We don't, but then we're not planning on staying here for long, and see it as renting from the bank instead of a landlord - at least we can do what we want to the place without having to ask anyone's permission!

But we're also well aware that we're relying n markets staying reasonably stable, so that we will recover what we owe when we sell. The market crashed just after we bought, in fact, and we were in negative equity for a while, which wasn't nice. We only wanted to live here for a year or two (tiny starter home), but are still stuck here after 6 years and are bursting out of the seams.

I can't claim we were mis-sold though. As I said, the bank was very clear what interest-only meant.

This is the danger with seeing it as renting off the bank (and all credit to you - unlike most IO mortgage owners, you're honest and admit that), is that you are liable 100% for the shortfall if you have to sell the asset (house) for less than the value of the debt secured on it.

Your risk is somewhat mitigated by the fact that - at the moment - it is significantly cheaper in terms of monthly payments to live in a house on an IO mortgage than renting the same place. However, that situation can change, and the only prudent way to do it (I can see) is to keep investing the difference in as secure and high yielding place as possible just in case you have to pay off that shortfall in future. If you're not doing that, then it's a big, big risk with houses priced the way they are (still ridiculous), and no wage inflation yet forthcoming.

Bogeyface But surely when anybody takes out a mortgage, they assume they'll continue working until it's paid off? It doesn't always happen, but most of make financial decisions based on the assumption that we will be. And why would we need to get a repayment mortgage to cover the outstanding capital? We'd just continue with the IO mortgage. Please tell me if I've missed something vital there, though!

Well for me the vital thing is that on my repayment mortgage, I know that in 11 years 11 months and one day (!) I will own this house free and clear. I dont have to worry about not being in a position to pay off a substantial amount of money and therefore having to work longer than I planned, struggle to make payments out of a pension or benefits if I am unable to work or having to apply (and possibly be rejected) for a further mortgage. Dont forget that continuing on IO isnt guaranteed. The goalposts could have changed again in 25 years and may mean that you wont be able to get a mortgage, IO or otherwise, and you will have to sell. But in 25 years it will mean far more to you, it will be the home that your children grew up in, that you have invested time, money and love. "Just" selling it wont be as simple by then.

Just my opinion though, each to their own :)

YANBU.

It's crazy to take out an interest only loan unless you've got a very good plan about how you're going to pay back the capital. Otherwise, all you're doing is renting a house from the bank for 25 years or whatever.

And I agree, the clue to that is definitely in the name.

I know a couple of people who've got interest only mortgages without a sensible repayment plan in place. Two couples who seriously overextended themselves getting a repayment mortgage (i.e. 95% mortgage that requires 2 full time workers to only just meet the payments), and then switched to interest only when circumstances changed.

But one person I know is counting on her parents dying before her interest only mortgage expires, and then using her inheritance to pay off her mortgage [hhmm]

There might be many over 50s planning to borrow as much as poss with no intention of paying it back but there are new rules on lending so they are relying on computer saying yes and dying to order which is frankly ridiculous,No one doesn't know what IO is but many are playing dumb as the years tick by. Of course if you know what you are doing it can be a good method in certain circumstances but not a lot of people are that savvy!They look at the cheaper monthly outgoing and sign

Having said all that.....I can see why someone who isnt actually that arsed about owning their house at the end of the term would go for IO if they could be sure that selling it would pay off the capital.

Its mostly cheaper than renting, you get more freedom within the property and you wont get kicked out at a months notice. But in order for that to work you need to be sure that you have bought at the best time, that you havent over extrended and that when you sell it will be worth enough to cover the outstanding loan.

Still not worth the risk imo, but then I am over halfway through an affordable repayment mortgage on a house that is worth 3 times what I paid for it, as I was lucky and bought at the absolute arse end of the last crash. So I suppose it is easy for me to say that isnt it?

Exactly noddy. And when you combine it with re mortgaging to withdraw equity as house prices were inflated.....

In 1992 I bought my first house, I was 24 and at the time my bank advised me the best way to do it was with an Endownment, at the time I didn't even realise there was a repayment mortgage, so I went ahead with it and had an extra Endownment insurance policy that promised to pay out after 25 years. Anyhow it so happened when I was 29 I got married and moved abroad and so sold my house, I made double the money and cancelled the endownment, at the time it transpired I wasn't making any money from this insurance policy!

We've just recently bought this year, there was no mention of an endownment policy, they don't even offer them now. Friends of mine who bought back in the early 90,s have shortfalls of £20,000 plus, they've lived a great lives of new cars, holidays, extensions, while we have saved up and now have a repayment mortgage with no debts, funny now that all the conversations of property, cars, holidays, restaurants have all dried up. The good life has gone.

The good life was fake.

I know Cheryl it was fake, thankfully I was never part of it.

If someone puts down a reasonable deposit an IO mortgage (so if you sold it would definitely cover what you owe) it is still better than renting.

A 25 year, IO mortage with a 25% deposit makes the average IO mtge payment about half of what you'd pay in rent around here. Of course it's not ideal and paying a repayment mtge would be better, but not everyone can afford to do that but they can live in the house that way cheaper than renting it - at least there's stability.

People who are on an IO mtge & claim not to have understood shouldn't be let out of the house on their own.

Bogeyface I knew you'd come round to my way of thinking . Seriously, your last post sums up why we did what we did - we haven't overextended ourselves (although we will have to cut back if the interest rates rise before our income does) and our LTV is 48%, so the market would have to implode for our house to be worth less than our mortgage on 25 years.