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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

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Original poster

AIBU to think interest only mortgage are a bad idea

78 replies

Lloyd45 · 03/05/2018 19:22

What happens when you come to the end of your term to pay the outstanding amount and you don't have it? Are we going to have a lot of OAP's homeless?

OP posts:

Fruitcorner123 · 03/05/2018 19:24

They are generally a bad idea but they work as a way to start out or if you are getting a buy to let. The assumption is that the house will increase in value and you will have the equity as deposit for your next place.

TyrionsNextWife · 03/05/2018 19:24

Totally agree, interest only is fine if it’s for investment properties or you’re very disciplined when it comes to saving but for the majority of normal, residential mortgages they’re a disaster waiting to happen.

I don’t think they’re as common now though, and the banks have to offer much more in depth advice about them.

xyzandabc · 03/05/2018 19:26

You sell it and pay off the mortgage, leaving you with any equity gained over the life of the mortgage, or its repossessed.

I think the idea is that as well as paying the interest payments you are meant to have some kind of savings plan that will pay off the mortgage at the end of the term but many people don't and just hope for the best.

Chattymummyhere · 03/05/2018 19:28

They are a big problem long term. Look at all the pensioners currently finding out the banks are about to repossess their houses because they had interest only mortgages and cannot afford to pay the actual capital off. My old LL had one of his rentals as interest only though as he was happy to just sell up once it’s due to be repaid and have his actual home plus his other rental.

Pippylou · 03/05/2018 19:30

You have to be earning a lot to get one now, it changed when they redid the mortgage regulations a few years ago.

It's different for BTLs as they aren't regulated the same.

CurlyhairedAssassin · 03/05/2018 19:32

Not all houses are increasing in value. My sister bought hers as a new build about 13 years ago. I think it’s worth around the same as what she paid for it. It’s basically gambling using your home as collateral.

sall74 · 03/05/2018 19:36

Fruit - I think "Borrow To Leech" was the more accurate term for what you were describing.

TolstoyAteMyHamster · 03/05/2018 19:38

When I moved the mortgage into my sole name post divorce seven years ago I was offered an interest only mortgage. I was very surprised and queried it extensively but the bank manager kept saying “it’s fine and gives you flexibility”. I was very comfortable with the choice of an IO mortgage as the equity in the property already exceeded the mortgage value, I could comfortably afford the mortgage and I knew I’d be disciplined about saving. And as it happens I can now - if I choose - pay off the balance owed though I won’t for a while as it’s earning more than I pay in interest, even taking tax into account. So for me it’s been great and has given me flexibility and earned me money.

But not once has anyone from the bank asked me whether and how I plan to repay them. Which I find astonishing and alarming, given all that’s happened.

All of which is less a “look at smug me” post than a “yes, clearly this is a huge looming issue” because I was lucky and unusual to be in the position I was in. And even if the bank took account of all those factors and decided I was low risk, it’s a little concerning they haven’t at least once reminded me that I do in fact owe them quite a bit of money.

ThroughThickAndThin01 · 03/05/2018 19:38

YABU.

In general.

For us it’s been a life saver. We pay less when we can’t afford it. Overpay when we can.

It’s brilliant.

We have an io mortgage over 20years, and can ride and predict the market,

We have bought our kids up in an amazing house we wouldn’t have otherwise afforded.

It’s better than renting.

Can’t recommend it highly enough.

PurplePumpkinPiss · 03/05/2018 19:43

And up pops Sall like clockwork 😂

Lilyhatesjaz · 03/05/2018 19:48

I took out one of these in the 80s I had to take out an endowment policy at the same time

shoelaces · 03/05/2018 19:51

I got on the housing ladder with a 100% mortgage. After 1st year I started overpaying by about £100 to bring down the debt. Sold after 3 years and property had increased in value. Used the equity to put down deposit on a family home on a 95% mortgage deal.

Just renewed our mortgage and we have 25% equity now and are overpaying again. We should shave off 11 yrs of the mortgage at this rate. 100% deals are great if used correctly.

DropZoneOne · 03/05/2018 19:52

We've got 50/50 and were recently contacted by the bank asking what repayment plans we have in place.

The idea was to decrease the interest only bit every few years, but we're on such a low interest rate that any change to the mortgage would see us paying more interest rather than more towards the capital.

ForalltheSaints · 03/05/2018 20:01

OP YANBU. Having them means that there is less incentive to do something to reduce the housing crisis in this country.

ivykaty44 · 03/05/2018 20:07

For some downsizing will be an option, sell the house and move to much smaller property which can be purchased with equity in property

Interest only mortgage has to be better than renting, property increases in value, no landlord and you can sell and have lump sum

LadyB49 · 03/05/2018 20:10

Many years ago we had an interest only mortgage.We had to take out an endowment insurance policy which was assigned to the building society and would mature at the end of the mortgage. This meant they had first call on it at maturity.

The selling point was that there would be enough on the policy to pay off the mortgage and also give the borrower a nice bonus.

Unfortunately many were left owing on their mortgage at the end. My brother had to take o out a 5 year loan to pay his off. Wasn't able to retire.

We owed 10k but fortunately we knew this was going to happen and were prepared for it.

TheWildRumpyPumpus · 03/05/2018 20:14

This couple were in the DM a couple of days ago having failed to save whilst only paying the interest (and extending their IO mortgage in order to do refurbishments).

He’s an accountant which is surprising - but there must be lots of people in the same position.

princesspino · 03/05/2018 20:15

We have just bought an IO. We can’t afford to pay it off in 20 years but we are in London and we are banking on selling it and downsizing when the kids have left home. It’s the only way we could afford such an amazing house

Oliversmumsarmy · 03/05/2018 20:16

We have one. Wouldn't have been able to afford a repayment mortgage instead we put both dc through private school.
Been here 20 years. About to sell and with the equity will be able to buy some thing a little further out and a holiday home abroad.

Firesuit · 03/05/2018 20:16

Hammers are a bad idea, because some people might use them to hit other people on the head.

Oliversmumsarmy · 03/05/2018 20:36

Unfortunately due to the stupidity of a few it spoils it for the many.

Re the sad face DM couple

I don't get how their IO mortgage repayment is so much. Equally I don't get if Len worked as an accountant how 15 years ago at the age of 61 he bought the house which must have been with a 100% mortgage he had after 40 years of work absolutely no deposit.

The figures just don't add up.

Original poster

Lloyd45 · 03/05/2018 20:40

Wow Oliversmum you did well from your house buy 20 years ago. Are IO mortgages still as accessible or i they dwindling out?

OP posts:

Oliversmumsarmy · 03/05/2018 20:59

We bought in an area that was on the outskirts of another area that because of transport links and other stuff going on it has over the years gone up so much that people started looking further and further out until it hit our area.

We bought a 1 bed 1 boxroom 1 bathroom bungalow which had the world's most stupidest layout. There was so much wasted space we spent a furthet £80,000 (saved up over many years) remodelling and renovating the place to create a 4 bed 2 bathroom place and converting the stables into a 1 bed annexe.

KanielOutis · 03/05/2018 22:18

It depends where you are. We could have bought an interest only house. Instead we bought a flat on a repayment mortgage. The equity now ten years later is the same. Flats haven't kept up with the market at all.

LizzieSiddal · 03/05/2018 22:24

We got a lifetime interest only mortgage in 2004, which is a tracker at 0.19 above base. We’d be mad to ever change it.

We run our own business so it’s allowed us to be very flexible, depending on how much we wish to take out of the business. We’ve paid large chunks off and also had times when we’ve only paid the interest payment.

It’s been fabulous for us.

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