Interest only mortage get out of jail card
Discussion
http://www.telegraph.co.uk/finance/personalfinance...
So as long as you keep up the payments you never have to pay it off...
So as long as you keep up the payments you never have to pay it off...
badgers_back said:
http://www.telegraph.co.uk/finance/personalfinance...
So as long as you keep up the payments you never have to pay it off...
Seems sensible - I don't know why we have the obsession with paying off mortgages anyway. So as long as you keep up the payments you never have to pay it off...
An interest only mortgage is just like renting- but off the bank rather than a landlord. The advantage however is that the payments don't track inflation (unlike rent) and you benefit from capital increase in the property too.
The bank still get their money back at the end of the term - so it's win/win.
My in-laws struggled, scrimped and saved to pay off their mortgage years ago - but had they been on an interest only mortgage and still owed it today - I would be able to pay off the outstanding capital with 1 months wages.
Edited by Moonhawk on Wednesday 29th October 09:49
Moonhawk said:
My in-laws struggled, scrimped and saved to pay off their mortgage years ago - but had they been on an interest only mortgage and still owed it today - I would be able to pay off the outstanding capital with 1 months wages.
This...Edited by Moonhawk on Wednesday 29th October 09:49
My financial adviser has told us we'd be best to enjoy the low repayments of an interest only mortgage now as in 25 years inflation will have deflated the capital amount to a fairly insignificant sum and there's a lot you can do with the spare cash. I don't think we'll see a return to the kind of hyper inflation that helped baby boomers pay £9,000 for a house that is now worth £450,000 (like my in-laws!), but wanting your mortgage paid off at all costs seems like a daft idea to me. You might not even live long enough to see it....
Latest ruse to push up house prices. Remove the need for a vehicle to ultimately repay the mortgage and the 'home owners' can afford larger interest payments, thus house prices simply increase to swallow those.
Remember, give everyone 20% more money to spend in return for the same monthly repayment and they don't all end up in 20% better houses, they end up in the same houses but that cost 20% more.
Home owners eventually end up paying the same per month on the same houses as they do now, but instead of for 25 years it will be for ever!
Great day for the banks, and best of all, people believe it is a good thing!
Remember, give everyone 20% more money to spend in return for the same monthly repayment and they don't all end up in 20% better houses, they end up in the same houses but that cost 20% more.
Home owners eventually end up paying the same per month on the same houses as they do now, but instead of for 25 years it will be for ever!
Great day for the banks, and best of all, people believe it is a good thing!
Loving the comments on this. Nobody so far realises what this is all about.
This isn't some great new initiative by the banks to attract new customers or a new choice for borrowers.
What this is about is the lenders having a load of st on their balance sheets. They are making the best of a bad situation, what else are they going to do? Reposses and take a hit on 100%+ ltvs and/or hit the headlines for turfing pensioners out of their homes??? How many IO mortgage products are there on the market compared to 2 years ago? The lenders are worried IO mortgages will turn into the next PPI
This isn't some great new initiative by the banks to attract new customers or a new choice for borrowers.
What this is about is the lenders having a load of st on their balance sheets. They are making the best of a bad situation, what else are they going to do? Reposses and take a hit on 100%+ ltvs and/or hit the headlines for turfing pensioners out of their homes??? How many IO mortgage products are there on the market compared to 2 years ago? The lenders are worried IO mortgages will turn into the next PPI
You may well be right, but the reality is that banks will end up using this to fund more and more money on the same properties, getting people in deeper and deeper, and kicking the can on down the road.
We're in a ridiculous situation regarding the gulf between affordibility and what's being leant/bought/rented. This should have unwound years ago but instead it is just made worse and worse, and the amounts and lengths of borrowing are ramping and ramping.
We're in a ridiculous situation regarding the gulf between affordibility and what's being leant/bought/rented. This should have unwound years ago but instead it is just made worse and worse, and the amounts and lengths of borrowing are ramping and ramping.
bennyboydurham said:
This...
My financial adviser has told us we'd be best to enjoy the low repayments of an interest only mortgage now as in 25 years inflation will have deflated the capital amount to a fairly insignificant sum and there's a lot you can do with the spare cash. I don't think we'll see a return to the kind of hyper inflation that helped baby boomers pay £9,000 for a house that is now worth £450,000 (like my in-laws!), but wanting your mortgage paid off at all costs seems like a daft idea to me. You might not even live long enough to see it....
I wonder how many Japanese financial advisors said that in the early nineties......oops.My financial adviser has told us we'd be best to enjoy the low repayments of an interest only mortgage now as in 25 years inflation will have deflated the capital amount to a fairly insignificant sum and there's a lot you can do with the spare cash. I don't think we'll see a return to the kind of hyper inflation that helped baby boomers pay £9,000 for a house that is now worth £450,000 (like my in-laws!), but wanting your mortgage paid off at all costs seems like a daft idea to me. You might not even live long enough to see it....
You cant predict the future based on what happened in the past. I'm overpaying the mortgage like mad (35% of take home on top of normal payment) for about 3 years while the rates are low. Cheap car, cheap holidays, very few un-necessary purchases. 40% of the mortgage will be gone and I'll then go back to having some good times again. 3 years is very little in the scheme of things to provide a nice chunk of security.
rossub said:
I wonder how many Japanese financial advisors said that in the early nineties......oops.
You cant predict the future based on what happened in the past. I'm overpaying the mortgage like mad (35% of take home on top of normal payment) for about 3 years while the rates are low. Cheap car, cheap holidays, very few un-necessary purchases. 40% of the mortgage will be gone and I'll then go back to having some good times again. 3 years is very little in the scheme of things to provide a nice chunk of security.
Nothing wrong with that. It all depends on your personal/family/financial situation really. We have at least 50% equity in the house as it is, so the nuclear option is to sell and downsize to a smaller house (something I'd probably want to do anyway by then as our house is over three floors), or use the extra dough from having a bottom dollar interest only deal to invest in other things that will take care of the capital remaining, or hope that a bit of inheritance comes along. The former is an option that will always be available and the latter two are reasonably likely, in our particular situation. We're a bit late to the house buying party and we're also going to be 'older' parents, me being 40 next year and planning to look to have kids some time the year after. I'd rather have as much dough as possible available now. You cant predict the future based on what happened in the past. I'm overpaying the mortgage like mad (35% of take home on top of normal payment) for about 3 years while the rates are low. Cheap car, cheap holidays, very few un-necessary purchases. 40% of the mortgage will be gone and I'll then go back to having some good times again. 3 years is very little in the scheme of things to provide a nice chunk of security.
Linda Bellingham didn't make it to 67, as plenty of others haven't, so I'm not going to get hung up over the future.
Ari said:
You may well be right, but the reality is that banks will end up using this to fund more and more money on the same properties, getting people in deeper and deeper, and kicking the can on down the road.
No they won't, you can't get a new IO mortgage easily now. They won't increase the level of borrowings on existing IO mortgages either unless the mortgage moves to a repayment method and fulfills other criteria, which would be unlikely for an older borrower. This is purely a loss mitigation strategy.If you look at the recent MMR it has made lending criteria much tighter than it has been previously. The lenders get the blame for lending too much and also for too little, they can't win.
The borrowers knew what they were doing taking out an IO mortgage,however let's look forward to some mis-selling claims in the near future. Easier to blame the evil banks though.
Burgmeister said:
CaptainSlow said:
Until the FCA reverse the last three years of MMR introductions and lenders forget about the amount of losses incurred on IO loans.
Which losses are these?At the moment of course
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