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Original poster

People with interest only mortgages - do they really not realise?

307 replies

minibmw2010 · 02/05/2013 09:06

Have read and heard several stories on the news today where they're saying many people with interest only mortgages either don't know what will happen at the end of the term (or they'll owe a huge sum) or haven't made provision.

Anyone with an interest only mortgage in that boat? I'm genuinely curious as it was heavily emphasised to me when I bought first what would happen.

OP posts:

MNHQ

SarahMumsnet · 03/05/2013 12:07

Hey everyone - we've just put together a page on interest-only mortgages - what they are, what the issues surrounding them are, and what your options are if you currently have one. Hope it's useful!

ParsingFancy · 03/05/2013 12:17

Nice one, SarahMN!

Can I be picky and point out the typo in the title - should be "Interest-only" not "Interest-free".

Also, can I very humbly suggest a couple of tweaks in the text?

"With an interest-only mortgage you only pay back the interest charged each month, leaving the amount borrowed (the capital) untouched. However, once your mortgage reaches the end of its term, you'll need to pay off back the capital debt.
To ensure you'll be able to do this, funds should be saved or invested separately into an investment vehicle, such as an ISA or endowment.
By comparison, a repayment mortgage requires you to pay off both the interest and pay back some of the capital each month ? making monthly mortgage repayments more expensive."

tribpot · 03/05/2013 12:40

Sign me up for one of these interest-free mortgages

ExcuseTypos · 03/05/2013 12:44

Parsing good tweeks!

Maybe you should report your post, as MNHQ may become aware of it more quickly.

StarlightMcKenzie · 03/05/2013 12:54

Who got on the housing ladder? At 37 I'm buying my first and can only afford interest only for a 3 single bedroom house with 3 children and a Dh who's job is and can only be in London, though his salary is more than twice the average.

Head in the sand it is not. It's simply survival.

OldLadyKnowsNothing · 03/05/2013 12:58

Mosman, you do know that if the bank repo's your house and it sells for less than you owe them, they can (and will!) chase you and your ex for the shortfall? (Assuming you're in the UK...)

JenaiMorris · 03/05/2013 13:03

Indeed. People end up paying back the shortfall years after having to sell their homes at a loss.

Friend of mine is in negative equity with an IO mortgage - she couldn't afford to sell when her circumstances changed so she's stuck there (thankfully she can manage the repayments so she won't be repossessed).

Mosman · 03/05/2013 13:18

I am not in the UK at the moment and person who the mortgage is in the name of won't be coming back in the 12 years they have to chase it.

Badvoc · 03/05/2013 13:19

I think eventually they will be either more tightly controlled or banned altogether.
It's a time bomb waiting to go off IMHO.
My sis is in negative equity with a huge IO mortgage. They want to move desperately, but can't afford it.
I think there must be many more in her position :(

rrreow · 03/05/2013 13:37

We're self employed and bought a house pretty much the month after self certification stopped. So we ended up with a more expensive mortgage than we wanted and the only option was interest only. We plan to remortgage as soon as we're in the position to. I'd much prefer to pay interest only on a house we actually own (we put down more than 50% deposit) than pay rent (and the rent in this area would be more than an interest only mortgage).

The thing is though, there are going to be a percentage of people with interest only mortgages that made an informed decision based on their personal circumstances, and there are other people who made the decision without thinking it through or educating themselves on the consequences.

newgirl · 03/05/2013 13:47

Yep we have interest only as it is 1/4 of the cost of renting on the same road.

We do have a repayment mortgage too, and a small endowment. It won't cover the final cost but we plan to move and sell before then (in about five years) and pay it off.

wonderingagain · 03/05/2013 14:03

Now I'm starting to wish I had one! Could have meant that extra bedroom...

handcream · 03/05/2013 14:33

Yes, I have a relative who has two houses (worth lots!) with interest only. Only works if the houses go up in value (they have - very posh area) but not for everyone.

Surely people recognised that if something was half the price or less than the other option there was a downside...

Mandy2003 · 03/05/2013 14:34

Having sold in London and bought 'in the suburbs' I had 75% deposit so I took in interest only mortgage for around £45,000 three years ago. (15 year term). My IO is a TENTH of the cost of private rents for similar properties locally.

Last year I considered that my financial position could cover it so I rang the building society to find out about changing to a repayment mortgage. The person on the phone had such a bad attitude and wanted to know the ins and outs of a cats bottom regarding what savings vehicle I had in place, refusing to supply any information about repayment mortgages until I'd told him in the n-th degree, that I gave up trying

Savings and inheritance will cover it, or by then DS will have long left home so I will downsize.

handcream · 03/05/2013 15:00

Mandy, there sometimes is a place for interest only mortgages but only when you have a large deposit or know the property is going to go up in valude (and who really knows that!)

Xenia · 03/05/2013 15:03

They are still very easily available for buy to let lenders with a 25% deposit.

There is nothing wrong with them as long as people read the label on the tin - interest only (which means you only pay interest). For the basic interesting only one you cannot be misled. It is so clear in the name what it means and most borrowers are offered both and can see the difference in repayments between the two.

I don't believe in a nanny state. If people want to make foolish financial decisions let them and often interest only is not foolish anyway.

(Not exactly tweaks- corrections of major errors!)

MNHQ

SarahMumsnet · 03/05/2013 15:11

oh lord

thanks everyone - faces well and truly eggy over here. We've amended the headline and will look at the tweaks you suggest, Parsing

LaQueen · 03/05/2013 16:24

This reply has been deleted

Message withdrawn at poster's request.

BoffinMum · 03/05/2013 16:33

Tbh we've done quite well out of IO. I think we have made £100k net out of being able to have one. But you have to be sure what you are doing and be prepared to sell rapidly if necessary

LaQueen · 03/05/2013 16:42

This reply has been deleted

Message withdrawn at poster's request.

JenaiMorris · 03/05/2013 17:10

STOP IT!

I keep thinking about that £50k cottage :(

LaQueen · 03/05/2013 17:20

This reply has been deleted

Message withdrawn at poster's request.

handcream · 03/05/2013 17:22

So, what happens if you take out a IO for 25 yrs - nice and cheap and then at say 60 it comes to an end and the bank wants its money back. My DM was in this position and getting a mortgage extended when you have just retired is very difficult.

Fine if you are ready to move but what if you arent ready or circumstances have changed? I guess that is when you start bleating that it wasnt fair - you were 'forced' into this mortage and signed not really understanding what you were agreeing to. All those letters you got from the lender reminding you - well - those went into the bin - you didnt understand them either!

ExcuseTypos · 03/05/2013 17:46

handdcream I don't think the majority of people have been "bleating" on this thread.

Most have said they will pay off the morgage or know they will have to downsize, before the end of the morgage.

handcream · 03/05/2013 17:48

I think we will hear a lot of bleating and complaining over the next few months. Agree though - not necessarily on this thread although someone earlier was asking for someone to explain just what it was they had signed up to!

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