Mad mortgage sob stories – what am I missing?

[amluuui]

I've seen a couple of slightly mad stories in the paper in the last few days, of people who have owned their homes for decades, yet have been on interest-only details. And now they're suddenly panicking about interest rates.

Like this bloke, who seems to have owned his house for over 20 years, remortgaged to pay for improvements and still has nearly half a million left to pay off.

He says: "We’ve geared our lives around the low interest rates of the past 13 years. I am the only earner in the family. If interest rates hit 6%, I’ll have to find an extra £1,480 per month – well over double what we pay now. That is totally catastrophic for our family, absolutely terrifying.”

Can anyone explain why on earth he thought this was a good idea? What would his rationale have been for doing this? (As a renter who is trying to save to buy, hell no I don't want to bail him out.)

Another woman here, who's owned her home for several decades and is on an interest-only mortgage. Why? It does seem she's had health problems, which is rubbish for her, but how was she planning to eventually pay off the mortgage?

Am still getting my head around mortgages and genuinely want to understand this, if anyone can help. I thought only landlords got interest-only deals?

You're not wrong but the point is not the individual sob stories really. It's the fact that a lot of people will have done this in a possibly-stupid-but-very-human way, because they could do it, and it is going to become a mess that will need sorting out.

I have never really understood interest only mortgages either (why not just rent?), but maybe people take a risk assuming property prices will go up as they have the last few years. Like you I don't have much sympathy but I also think a load of people with suddenly no money and nowhere to live is a problem for us all.

Another woman here, who's owned her home for several decades and is on an interest-only mortgage. Why? It does seem she's had health problems, which is rubbish for her, but how was she planning to eventually pay off the mortgage

That one is easy to answer. She is making the best out if a shot situation. By paying interest only, she still has a house and doesn’t have to deal with issues linked with renting, incl possibly having to move regularly and nit finding anywhere because … illness.
Her mortgage is probably lower than renting.
If she was selling, she would go over the threshold re benefit and loose that asset.
She was/is probably still hoping to be able to make it work somehow. Or sell it once she retires etc…l

Bring ill is quite different than planning badly financially.

I got sold an endowment mortgage back in the day and thank god saw the writing on the wall. There was not a cat in hell's chance that we would have been able to pay our mortgage off. Would love to have stayed in our house but had to face up to reality and we sold up and downsized significantly.

So many people stick their heads in the sand rather than sit down and do the maths. Then one day the decision is taken out of their hands when the wheels fall off.

It beggars belief that personal finances is still not taught as basic education. Who gives a shit about algebra when what young people really need to know is how to manage money and what interest rates and APR mean and how financial products work.

My first mortgage was interest only. As PP have said, very popular in the late 90's/00's. You had an endowment policy which matured with the mortgage and should be enough to pay the mortgage off at the end. There was a big hoo ha about them being mis-sold and lots of people got compensation. Most people then moved to repayment. Obviously some didn't. It's very difficult, especially if life has chucked crap at you. We went back to interest only for a few months a few years ago when DP lost his job.
I do feel for people in this position.

He says: "We’ve geared our lives around the low interest rates of the past 13 years. I am the only earner in the family. If interest rates hit 6%, I’ll have to find an extra £1,480 per month – well over double what we pay now. That is totally catastrophic for our family, absolutely terrifying.”

What a knob. Does he have lots of bifold doors and a concrete kitchen?

Possibly people who are younger and haven’t really been in contact with the consequences of those.

Plus i suspect some people have never planned to repay the mortgage as such. Just repay it when they sell and hope for a nice profit on the sale.

I’m in my mid thirties and we first bought a property about 10 years ago. When we were buying we were told by the financial advisor at the estate agent that we could get a far larger mortgage than we requested. We said no because we wanted to future proof ourselves; more for personal circumstances than interest rates, but also with that in mind.

I’d wager that plenty of people mortgaged themselves up to the eyeballs, thinking ‘it won’t happen’. I know some of my friends are now in that position.

We are just coming to the end of our interest only mortgage been over paying it since the beginning knocked 8 years off the term also used it as a savings plan so will have a good sum to come back . They are ok if your disciplined.

We had an interest only mortgage. Actually all our previous mortgages were interest only.

When times were hard it was a much lower repayment. A bit like low rental from a bank.
We had an offset type mortgage. So Interest only but lump sums were set against the value we had borrowed so could be taken back if needed.
When times were better we paid in lump sums.

Finally we sold to release equity and downsized to two properties with no mortgage (divorced).

With this method it's very important to have self control. You can't see it as free spending, you do have to either pay the mortgage off or sell to settle. We didn't have a repayment vehicle though. We weren't required to have one back then.

It was a great way to have flexible money without having to ask for extra. Money in the pot could be withdrawn.

BoE have just raised the base rate 0.5 percent.

It beggars belief that personal finances is still not taught as basic education. Who gives a shit about algebra when what young people really need to know is how to manage money and what interest rates and APR mean and how financial products work
The wealthy and powerful wouldn't be able to stay that way if the plebs properly understood finances!

There’s nothing inherently wrong with interest only, or taking on a higher risk/bigger mortgage as long as there is a solid plan B in place if things go wrong and a good understanding of exactly what the risks are. So many of my friends are mortgaged up the arse with absolutely no plan B, so could be looking at an emergency downsize at best and bankruptcy at worst. They’re really worried.

I expect we will see an awful lot of 4/5 bed houses coming on bought on tiny deposits soon.

I expect we will see an awful lot of 4/5 bed houses coming on bought on tiny deposits soon
The vendors of which will have to drop the price much lower than they want to.

If you could afford to overpay an Interest only mortgage, why didn’t you take out or switch to a Repayment mortgage?

Interest rates were up around 5.75% in 2007, so anyone whose had a mortgage for 20 years but has ‘geared their life’ around low interest rates is an idiot.

We bought in 2009, when interest rates were very low, but geared our borrowing around the knowledge that rates could at go back up to 2007 levels.

IO mortgages being paid off by pensions were very tax efficient and I wish id had one.

My SIL has an interest only mortgage. She got a guarantor mortgage for her parents at first then switched to interest only for her and her DB who she jointly owns flat with but he was a student on buying and though he’s paid some of the mortgage he doesn’t pay anything now as he’s got his own family.

He expects to get an equal split of sale proceeds when flat is sold probably next year and SIL isn’t arguing that. Can’t say anymore as outing.

I’ve got no idea why SIL hasn’t switched mortgages as she seems to me to be fairly savvy with money.

Do mortgages not insist you have insurance to pay out the mortgage in the case of one of the people dying?

I am uninsurable for life insurance, insurers refuse to quote because of my mental health history. Yet I have a mortgage.

You've typically got more flexibility with an interest only mortgage, so you can over pay more or make a lump sum reduction when a savings policy matures/ you get a bonus etc.

That's what we did. Interest only mortgage. Paid a sensible amount of capital off each month and then paid in my bonus every year.

Again, if you are in your 30s, interest rate in 2000~2005 won’t have registered with you….
All you’ll have known as an adult is very low interest rates.

Plus in 2009, you could still have the choice of buying a house at ‘reasonable’ price. One that can only be dreamt in 2023. Aka people have had no other choice than borrowing to the hilt if they wanted to become house owners.

You can overpay 10% a year on most Repayment mortgages. But fair enough if Interest Only offers more flexibility than that.
So they’re ok as long as the people taking them out are financially savvy, it seems.

So true.

I ended up with an almost 6k overdraft when I was 28 (earning 32k). If either my mum or the schooling system had sat me down and told me, in cold hard detail, what that would mean for my future, I doubt I would have been so irresponsible and I would have learned to live within my means.

It's absolutely bonkers that schools don't teach kids how to pay bills, budget, and that credit cards are, in the most part, very bad.

Back in those days the bank also raised my overdraft by 1k without me even asking for it. Yay, more free money that belongs to someone else to spend!

Bloody idiots. Me and them.

For Steven, a media consultant from Guildford, and his wife, the remortgaging nightmare is only beginning. “People like me can’t sleep at night – it’s horrendous,” he says. “The mortgage for our three-bed cottage is up for renewal in December. We’ve geared our lives around the low interest rates of the past 13 years. I am the only earner in the family. "

Looks like Mrs Steven might need to hit the pavements and get a job.

Some of the stories don't even make sense: "IT worker Richard has used up £50,000 worth of savings to try to get his mortgage rate down
The IT worker is now on a tracker mortgage, which cost £1,000 in fees to switch to. His monthly interest payments were due to increase from £260 per month to £803 but he managed to get that down to £765 using his savings."

Why such a small decrease, surely £50,000 in savings would either pay the £803 repayments for years or decrease the overall loan.

So basically, some people (idiots by the sound of some of them) took on huge payments to improve, remortgage, buy much bigger than they could afford and now whinge when payments have gone up. What do they want? Someone else to pay for them?

They either look at their spending and cut back to cover, extend the term if they can, move and downsize, move, work more hours, use savings as the £50,000 IT guy did. It is tough for lots of people but we don't all whinge to a newspaper.

Only 10%?.
We are overpaying by much much more than that.