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Interest only mortgages
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I know there are enough on them for it to be a problem. They're different to endowment mortgages aren't they ? There was a local news item recently where a couple were about to lose their house because they were required to pay the main amount for it. I don't understand exactly how they work so I'm not sure if they would have been made aware that if you're only paying the interest on a loan eventually the main loan amount will fall due. |
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By *andonmessMan
over a year ago
A world all of his own |
They're predominantly used in the rental market (increase in value of the property makes the profit) or more usefully if you've come on hard times and just need to make lower payments for a while to get yourself straight.
They absolutely have their place but I'm on a repayment mortgage. |
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By (user no longer on site)
over a year ago
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"They're predominantly used in the rental market (increase in value of the property makes the profit) or more usefully if you've come on hard times and just need to make lower payments for a while to get yourself straight.
They absolutely have their place but I'm on a repayment mortgage."
I couldnt agree more. I have two letting properties. Its has been slow increase in property value in the last 10 years but made more money than leaving the cash in the bank. Likewise takes pressure of you in rough times. Just remember to switch back to a repayment mortgage. |
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By (user no longer on site) OP
over a year ago
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"They're predominantly used in the rental market (increase in value of the property makes the profit) or more usefully if you've come on hard times and just need to make lower payments for a while to get yourself straight.
They absolutely have their place but I'm on a repayment mortgage."
That’s my reason for it. Taking a few years to
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"I know there are enough on them for it to be a problem. They're different to endowment mortgages aren't they ? There was a local news item recently where a couple were about to lose their house because they were required to pay the main amount for it. I don't understand exactly how they work so I'm not sure if they would have been made aware that if you're only paying the interest on a loan eventually the main loan amount will fall due. "
Hard to imagine they didn't know. That's exactly what they are. You buy a house today for £300k on a 25 year interest only mortgage. In 25 years you need to pay back £300k or sell the house. If you live in the property then repayment mortgage is a no brainer and if you rent it out then interest only is a no brainer. |
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"I know there are enough on them for it to be a problem. They're different to endowment mortgages aren't they ? There was a local news item recently where a couple were about to lose their house because they were required to pay the main amount for it. I don't understand exactly how they work so I'm not sure if they would have been made aware that if you're only paying the interest on a loan eventually the main loan amount will fall due.
Hard to imagine they didn't know. That's exactly what they are. You buy a house today for £300k on a 25 year interest only mortgage. In 25 years you need to pay back £300k or sell the house. If you live in the property then repayment mortgage is a no brainer and if you rent it out then interest only is a no brainer. "
I find it hard to imagine too. However the people I saw interviewed who were about to lose their home claimed they didn't and quite a few people contacted to program claiming they didn't either.
I suspect it was a case of "oh it'll be OK" rather than they genuinely didn't know. Mind you it wouldn't be the first time a financial product was missold. |
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"I know there are enough on them for it to be a problem. They're different to endowment mortgages aren't they ? There was a local news item recently where a couple were about to lose their house because they were required to pay the main amount for it. I don't understand exactly how they work so I'm not sure if they would have been made aware that if you're only paying the interest on a loan eventually the main loan amount will fall due.
Hard to imagine they didn't know. That's exactly what they are. You buy a house today for £300k on a 25 year interest only mortgage. In 25 years you need to pay back £300k or sell the house. If you live in the property then repayment mortgage is a no brainer and if you rent it out then interest only is a no brainer.
I find it hard to imagine too. However the people I saw interviewed who were about to lose their home claimed they didn't and quite a few people contacted to program claiming they didn't either.
I suspect it was a case of "oh it'll be OK" rather than they genuinely didn't know. Mind you it wouldn't be the first time a financial product was missold. "
Two possibilities, they have IQs below 80 or they are lying. |
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By (user no longer on site)
over a year ago
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"I know there are enough on them for it to be a problem. They're different to endowment mortgages aren't they ? There was a local news item recently where a couple were about to lose their house because they were required to pay the main amount for it. I don't understand exactly how they work so I'm not sure if they would have been made aware that if you're only paying the interest on a loan eventually the main loan amount will fall due.
Hard to imagine they didn't know. That's exactly what they are. You buy a house today for £300k on a 25 year interest only mortgage. In 25 years you need to pay back £300k or sell the house. If you live in the property then repayment mortgage is a no brainer and if you rent it out then interest only is a no brainer. "
I had an interest only mortgage 20 years ago. It was made VERY clear to me what the consequences were. At the time, the interest rates were different and the endowment was set to pay it off no problems. I changed to repayment when the shit hit the fan. |
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"I know there are enough on them for it to be a problem. They're different to endowment mortgages aren't they ? There was a local news item recently where a couple were about to lose their house because they were required to pay the main amount for it. I don't understand exactly how they work so I'm not sure if they would have been made aware that if you're only paying the interest on a loan eventually the main loan amount will fall due.
Hard to imagine they didn't know. That's exactly what they are. You buy a house today for £300k on a 25 year interest only mortgage. In 25 years you need to pay back £300k or sell the house. If you live in the property then repayment mortgage is a no brainer and if you rent it out then interest only is a no brainer.
I had an interest only mortgage 20 years ago. It was made VERY clear to me what the consequences were. At the time, the interest rates were different and the endowment was set to pay it off no problems. I changed to repayment when the shit hit the fan. "
There's a shit tonne of regulation about things they have to tell you before you take out a mortgage. Even if they didn't, when faced with two options to buy a house and one is ~25% cheaper then you really have to be dumb not to ask "what's the catch?". By my figures, it we averaged an inflation above ~5% for the 25 year term then interest only would work out better. But given the bank of England have a ~2% target then it doesn't seem likely. |
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By (user no longer on site)
over a year ago
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"I know there are enough on them for it to be a problem. They're different to endowment mortgages aren't they ? There was a local news item recently where a couple were about to lose their house because they were required to pay the main amount for it. I don't understand exactly how they work so I'm not sure if they would have been made aware that if you're only paying the interest on a loan eventually the main loan amount will fall due.
Hard to imagine they didn't know. That's exactly what they are. You buy a house today for £300k on a 25 year interest only mortgage. In 25 years you need to pay back £300k or sell the house. If you live in the property then repayment mortgage is a no brainer and if you rent it out then interest only is a no brainer.
I had an interest only mortgage 20 years ago. It was made VERY clear to me what the consequences were. At the time, the interest rates were different and the endowment was set to pay it off no problems. I changed to repayment when the shit hit the fan.
There's a shit tonne of regulation about things they have to tell you before you take out a mortgage. Even if they didn't, when faced with two options to buy a house and one is ~25% cheaper then you really have to be dumb not to ask "what's the catch?". By my figures, it we averaged an inflation above ~5% for the 25 year term then interest only would work out better. But given the bank of England have a ~2% target then it doesn't seem likely. "
It might not be that they are dumb as such. Like Mrs N said, they might think it will be ok. It could be the only way they'd ever be able to afford a house. Maybe they think in later years they could afford to overpay and make up the difference. |
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"I know there are enough on them for it to be a problem. They're different to endowment mortgages aren't they ? There was a local news item recently where a couple were about to lose their house because they were required to pay the main amount for it. I don't understand exactly how they work so I'm not sure if they would have been made aware that if you're only paying the interest on a loan eventually the main loan amount will fall due.
Hard to imagine they didn't know. That's exactly what they are. You buy a house today for £300k on a 25 year interest only mortgage. In 25 years you need to pay back £300k or sell the house. If you live in the property then repayment mortgage is a no brainer and if you rent it out then interest only is a no brainer.
I had an interest only mortgage 20 years ago. It was made VERY clear to me what the consequences were. At the time, the interest rates were different and the endowment was set to pay it off no problems. I changed to repayment when the shit hit the fan.
There's a shit tonne of regulation about things they have to tell you before you take out a mortgage. Even if they didn't, when faced with two options to buy a house and one is ~25% cheaper then you really have to be dumb not to ask "what's the catch?". By my figures, it we averaged an inflation above ~5% for the 25 year term then interest only would work out better. But given the bank of England have a ~2% target then it doesn't seem likely.
It might not be that they are dumb as such. Like Mrs N said, they might think it will be ok. It could be the only way they'd ever be able to afford a house. Maybe they think in later years they could afford to overpay and make up the difference. "
Maybe, but they are lying if they said they were never told that they would have to stump up the cash at the end of the 25 years or they didn't know. |
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"I am . Keeps payments at a fraction of the cost. House will be sold well before the balance is due. Risks all explained before taking it out. "
Having bought and sold houses in the eighties the horrors of negative equity still haunt us. |
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"I am . Keeps payments at a fraction of the cost. House will be sold well before the balance is due. Risks all explained before taking it out.
Having bought and sold houses in the eighties the horrors of negative equity still haunt us. "
Not much difference in the risk profile in that sense though? |
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By (user no longer on site)
over a year ago
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"I am . Keeps payments at a fraction of the cost. House will be sold well before the balance is due. Risks all explained before taking it out.
Having bought and sold houses in the eighties the horrors of negative equity still haunt us. "
I know yes I remember all that on the news. Luckily I buy and live in cheap wrecks  |
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"I am . Keeps payments at a fraction of the cost. House will be sold well before the balance is due. Risks all explained before taking it out.
Having bought and sold houses in the eighties the horrors of negative equity still haunt us.
I know yes I remember all that on the news. Luckily I buy and live in cheap wrecks "
There's a balance to be struck for sure. I do think a lot of middle class people who put all their eggs into their dream house are often taking risks that they don't understand. |
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By (user no longer on site) OP
over a year ago
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Folks. Thanks for your input. I know I’ll be selling the house in 3-4 years. Plus I’ve equity in the property. Mortgage sits at 64k and house valued at 85k. So I’m real terms I’m
Trying to cut down my outgoings |
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By (user no longer on site)
over a year ago
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"Folks. Thanks for your input. I know I’ll be selling the house in 3-4 years. Plus I’ve equity in the property. Mortgage sits at 64k and house valued at 85k. So I’m real terms I’m
Trying to cut down my outgoings "
Will banks actually lend money on interest only nowadays though. We got ours in the days of self certification too. So much easier back then |
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"Folks. Thanks for your input. I know I’ll be selling the house in 3-4 years. Plus I’ve equity in the property. Mortgage sits at 64k and house valued at 85k. So I’m real terms I’m
Trying to cut down my outgoings
Will banks actually lend money on interest only nowadays though. We got ours in the days of self certification too. So much easier back then "
Banks won’t do IO mortgages any longer, but you may find some of the smaller finance outfits do. They are dangerous & it’s a massive risk ... Make sure you get some independent advice before you decide OP!! |
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By (user no longer on site) OP
over a year ago
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"Folks. Thanks for your input. I know I’ll be selling the house in 3-4 years. Plus I’ve equity in the property. Mortgage sits at 64k and house valued at 85k. So I’m real terms I’m
Trying to cut down my outgoings
Will banks actually lend money on interest only nowadays though. We got ours in the days of self certification too. So much easier back then "
The simple answer is I don’t know if they will. But I’d assume they will. |
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"I am . Keeps payments at a fraction of the cost. House will be sold well before the balance is due. Risks all explained before taking it out.
Having bought and sold houses in the eighties the horrors of negative equity still haunt us.
Not much difference in the risk profile in that sense though? "
Well I'm not a financial expert but I do know that if I buy a house for 100k with an interest only mortgage for say 80k and when I want to sell it to pay the mortgage off its only worth 70k I am, to use a technical term buggered. |
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By (user no longer on site)
over a year ago
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"Folks. Thanks for your input. I know I’ll be selling the house in 3-4 years. Plus I’ve equity in the property. Mortgage sits at 64k and house valued at 85k. So I’m real terms I’m
Trying to cut down my outgoings
Will banks actually lend money on interest only nowadays though. We got ours in the days of self certification too. So much easier back then The simple answer is I don’t know if they will. But I’d assume they will. "
As Morticia said above Im not sure you will. Not very easily at least and I guess they will cover their backs pretty well at your expense. |
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"I am . Keeps payments at a fraction of the cost. House will be sold well before the balance is due. Risks all explained before taking it out.
Having bought and sold houses in the eighties the horrors of negative equity still haunt us.
Not much difference in the risk profile in that sense though?
Well I'm not a financial expert but I do know that if I buy a house for 100k with an interest only mortgage for say 80k and when I want to sell it to pay the mortgage off its only worth 70k I am, to use a technical term buggered."
Yeah, I'm just saying you're not much more or less buggered by whether you had an interest only mortgage or a repayment one. |
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"How can you say that? Why do you think that they are no longer offered?"
They are offered, perhaps not by banks. I can say that because it's a matter of fact due to the effects of compound inflation. |
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It all depends on the mortgage itself.
I’m interest only and when other lenders try to sell me a new mortgage they cough and splutter when they hear what I have.
The important thing is to ensure that you have no penalties for overpayment or lump sum payments and then reduce your capital that way.
They’re not so evil as people make out providing you don’t over stretch and manage them properly. |
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"It all depends on the mortgage itself.
I’m interest only and when other lenders try to sell me a new mortgage they cough and splutter when they hear what I have.
The important thing is to ensure that you have no penalties for overpayment or lump sum payments and then reduce your capital that way.
They’re not so evil as people make out providing you don’t over stretch and manage them properly. "
Well let's be clear, unless there's a period of high inflation then you are going to pay more for them in the mortgage term, assuming you are an owner-occupier. In the short term, you might have years where you need to minimise your outgoings, but in the long run there are no real pros. |
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"It all depends on the mortgage itself.
I’m interest only and when other lenders try to sell me a new mortgage they cough and splutter when they hear what I have.
The important thing is to ensure that you have no penalties for overpayment or lump sum payments and then reduce your capital that way.
They’re not so evil as people make out providing you don’t over stretch and manage them properly.
Well let's be clear, unless there's a period of high inflation then you are going to pay more for them in the mortgage term, assuming you are an owner-occupier. In the short term, you might have years where you need to minimise your outgoings, but in the long run there are no real pros. "
I beg to differ.
Not going to get into details on an open forum but I was very lucky with the mortgage I have.
Wouldn’t change it for any other product and I check regularly.
Happy to discuss privately.
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