Interest only mortgages: your success and horror stories please

[KievLoverTwo]

So we're not looking to buy at the moment before you jump all over me saying DON'T, FOR THE LOVE OF COD, DON'T DO IT

But

There is a thread going elsewhere where someone's considering it and a few people have said it absolutely worked well for them.

So, because I don't really know a great deal about them, I'm asking you folks here for your experiences/those of friends, family, etc.

Probably when we do buy, my OH absolutely wouldn't want to go for it, he's very risk adverse (as am I, but a teeny bit less so). But I'd like to hear all the reasons why it would be the worst idea in the world (or not) please!

We did it when we bought a flat in town (had a house outside). The plan was to put aside enough cash each month to enable us to pay off the mortage at the end of the 5 year fix. Which we did. But that was in the days when the mortgage on the flat was less than we'd being paying British Rail to commute into town. It can be done but you need a good plan to repay.

I'd always thought they were for people who had bought and then life had thrown them a tough hand and they needed to tighten their belt. It seems a bit foolhardy to plan this from the outset.

I had one. Self certified too. It was only short term solution for buying the house I wanted when I wanted though. I paid it off after a year with a conventional repayment mortgage.

We did, but they were the thing when we first bought ( along with an endowment policy).

Endowments were a flawed product, but we were very disciplined in saving for the shortfall, and we converted to an offset for the last 7 years, which was an excellent product for our circumstance.

I don’t know if offsets are still around, but worth a look at , in my experience.

We switched to interest only for several years when the kids were small and I wasn't working. It just meant that we could afford to keep the house as the payments were so low. Once I was back to working full time we moved house, and got a repayment mortgage on the new house. The jump in mortgage payments was a bit of a shocker 😂
It was useful for us at that time but I don't think they are a great long term plan.

Well, that's what I thought as well, but the thread I read included people doing it as a strategy, not out of desperation. Hence asking for stories.

I got one when I was 55. I paid off a lump sum shortly after when an old endowment matured.

When I was 60 I took works pension and the majority of my lump sum went into the linked savings account.
Think the outstanding balance around them was about 70k ish. I also overpaid a bit.
Couple of months ago they increased monthly payment to £250 so I asked about reducing it with the money in the linked savings account. I only had to pay £180 on top of what was in the savings account (about £63k).

I feel as if I paid off mortgage for £180 as I rarely thought about the savings.

It worked well when houses were shooting up in price. A few friends bought with 100% interest only mortgages in the early / mid 2000s. Sold five or so years later for hugely bigger amounts. Paid off the interest only mortgage and had a good chunk for a deposit.

those were different times

I have one on my BTL - had almost paid off the mortgage in full, but then split up from ex & needed to borrow a big chunk out of it to afford current place.

It's not making much of a profit, but I expect to inherit a lot over the next few years which I may use to pay it off.

Or I'll sell if the BTL legislation/taxation becomes more problematic - more likely.

I think it's only good as a temporary measure & unless you have a rock solid method of repaying the capital, I wouldn't do it.

We have always had them. But we buy properties that need work and use the extra money we would be repaying on the mortgage to renovate the properties slowly and once they are done we overpay on the mortgage. Eventually we will downsize, once the kids leave home, so will never pay off the house we currently live in but will have payed off enough equity to buy outright when we do. I.e. our aim is not to pay off the mortgage but to live in a place which suits us for different times in our lives and think of equity in the house as a savings/ retirement pot.

I think a true interest-only mortgage is pretty hard to get now, so it might be a moot point, tbh. Certainly I’d be surprised if you were offered one as a FTB. Offset mortgages do the same job, but you’ll have substantial savings to offset, so not quite the same.

We have one. Not for everyone but it has worked for us by giving us flexibility on when and how to spend our money (for example, it helped us weather the years when we needed to pay school fees). We could, but probably won't stay in this house long term as it's bigger than we'll need in retirement and in an expensive part of London we chose for schools - no longer relevant as dc now in late teens and twenties. We're allowed to pay 10% off the capital every year, which we do at a point in the year of our choosing, so we've actually paid off a substantial chunk and current LTV is less than 15%. It's working especially well at the moment because we have a fixed rate at 1.49% and our savings are currently earning more than twice that.

Interest only can work well if you are good with money because it allows you to decide when to pay off the capital, but you need a lot of self control.

The issue is due to the number of Daily Rage sadfaces :

"We didn't understand interest only and now we face being kicked out of our house"

it has become a lot more difficult to get these. You can only get them if you show how you are going to repay the capital at the end and they are now a lot more aggressive about policing this. So using them probably doesn't actually mean your monthly outgoings are that much less than they would be on a repayment.

Interest only mortgages work but you do have to be disciplined and understand what you are getting into. They allow flexibility for expensive times of life.

We have no repayment vehicle on our interest only mortgage but the bank made us sign a separate document making it very clear we would still owe money once the mortgage term was up and we would be expected to sell to cover it.

We had to meet an income threshold too. Which I believe was £100k.

We had one. Another self certified one as both freelance. We chose it as a strategy.

We had our mortgage saving pot and when interest rates were low we were able to tie up our mortgage money pot into an investment with a higher rate of interest.

We paid into the pot in the same way as you would pay a mortgage whilst also paying the interest ( which has historically been very low ) We didn't divert from that process.

Happy to say it has worked well.

Had one for many years (bought in the early 2000s) and it was great for me as a FTB because what I was paying in mortgage interest each month was way less than a half of what I would have been paying in rent. It was also a massive benefit when I went self employed as my outgoings were so low.

About 18 months ago, I remortgaged to a repayment mortgage, (with offset) and although my monthly payment is now 4x higher than before (because I wanted to pay it off within 10 years), I don't regret having the previous 15 years or so on interest only, and I'm much better off financially now so can afford the increased monthly amount.

It was brilliant for us. We had an endowment with ours which performed as it was supposed to. When we absolutely needed to move for work we cashed in our endowment to put a large deposit down on something else. We converted the first mortgage to a Buy To Let and rent it out.

Without the interest only mortgage I don't know what we would be doing now. Our mortgage would be paid off but we would both have been leading miserable working lives in our late 50's/ 60's. As it is we now have our own business which is part of our home which would have been impossible in our previous location.

I guess this has only worked well for us because we had lived in our previous house for over 20 years. The equity in it would pay off both houses.

My family member;
Nearly 20 years paying an IO mortgage
When marriage ended they walked away with just £10k each (they had switched to repayment a couple of years earlier)
Had they had a repayment mortgage, they would have each walked away with £150k +

This doesn't seem right...their house only gained £20k equity in 20 years?

Either way, they will have benefitted (as a couple) from having more disposable income during their 20 years of paying an IO mortgage.

Maybe that’s a true story.

however a) they wouldn’t have walked away with £20,000 had they been renting.

b) with interest rates so low they were probably paying not much on their mortgage, far less than rent would have been almost certainly , - why the hell didn’t they save to pay the mortgage off in due course? Were they throwing money away on a nice lifestyle?

The problem with io mortgages is with the people who have them - you have to have the basic understanding of what they are.

We have had our io mortgage for around 16 years. 0.48 above base. We really benefited from low interest rates over the years. We overpaid when times were good and didn’t when they weren’t. Due to expire in 3 years and I’ll clear what’s left, around £40,000 from £500,000 original amount, from savings. It has been an entirely good thing for us.

It depends if you have big cash flows it's good and the risk is low. So we have a rental worth 160k left to pay is 30k basically you chuck 2-3k or so down and it goes down there's no commitment to pay it down and it frees up cash for other investments. My principal home I wouldn't do it.

It enabled us (husband and 2 kids) to buy our forever home in a good school catchment area. Over time his salary tripled but every year he claimed we could not afford to switch to repayment. 16 years later we divorced and despite the house more than doubling in value, there was not enough equity left for me to get a home of my own (I was/still am a low earner). If we had simply overpaid a bit it would have been worth it but that all depends on whether you can trust yourself not to keep putting off the inevitable.

My husband had one on a BTL. He sold the place for 65k profit and we used that to do an extension on our house. If you're lucky, they can work.