Interest only mortage get out of jail card

Interest only mortage get out of jail card

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Discussion

badgers_back

Original Poster:

513 posts

185 months

Wednesday 29th October 2014
quotequote all
http://www.telegraph.co.uk/finance/personalfinance...

So as long as you keep up the payments you never have to pay it off...


Troubleatmill

10,210 posts

158 months

Wednesday 29th October 2014
quotequote all
Natural progression from those equity release.schemes.

A very cheap way to rent a property though.

Moonhawk

10,730 posts

218 months

Wednesday 29th October 2014
quotequote all
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.

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

fido

16,752 posts

254 months

Wednesday 29th October 2014
quotequote all
My uncle lived above a couple in North London who effectively gave him their half of the house (and freehold) in exchange for interest payments until they passed away. Sounds very similar to this.

hornetrider

63,161 posts

204 months

Wednesday 29th October 2014
quotequote all
Troubleatmill said:
A very cheap way to rent a property though.
It does seem to be, rather scratchchin

trickywoo

11,705 posts

229 months

Wednesday 29th October 2014
quotequote all
Moonhawk said:
I don't know why we have the obsession with paying off mortgages anyway.
Its the 'ultimate' rainy day protection. If you own a house pretty much no matter what happens in your life financially you'll be able to live fairly comfortably.

The Hypno-Toad

12,249 posts

204 months

Wednesday 29th October 2014
quotequote all
With the continuing number of people living and working longer it seems like a very sensible idea indeed to me.

The fact I'm on interest only has nothing to do with my opinion at all...

bennyboydurham

1,617 posts

173 months

Wednesday 29th October 2014
quotequote all
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.

Edited by Moonhawk on Wednesday 29th October 09:49
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....



Ari

19,328 posts

214 months

Wednesday 29th October 2014
quotequote all
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! biggrin

CaptainSlow

13,179 posts

211 months

Wednesday 29th October 2014
quotequote all
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 frown

Ari

19,328 posts

214 months

Wednesday 29th October 2014
quotequote all
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.

rossub

4,400 posts

189 months

Wednesday 29th October 2014
quotequote all
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.

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.

Ari

19,328 posts

214 months

Wednesday 29th October 2014
quotequote all
Couldn't agree more. Got mine cleared a few years ago, makes a massive difference (not to mention a nice feeling of well being that, short of a real disaster, the place is all mine).

bennyboydurham

1,617 posts

173 months

Wednesday 29th October 2014
quotequote all
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.

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.


CaptainSlow

13,179 posts

211 months

Wednesday 29th October 2014
quotequote all
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.

Ari

19,328 posts

214 months

Wednesday 29th October 2014
quotequote all
CaptainSlow said:
No they won't, you can't get a new IO mortgage easily now.
How long do you think that will last..?

CaptainSlow

13,179 posts

211 months

Thursday 30th October 2014
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Ari said:
How long do you think that will last..?
Until the FCA reverse the last three years of MMR introductions and lenders forget about the amount of losses incurred on IO loans.

Burgmeister

2,206 posts

209 months

Thursday 30th October 2014
quotequote all
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?


badgers_back

Original Poster:

513 posts

185 months

Friday 31st October 2014
quotequote all
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?
My rental place they lend me 190k I pay them 137 UKP a month for the privileged....

At the moment of course

Burgmeister

2,206 posts

209 months

Friday 31st October 2014
quotequote all
badgers_back said:
My rental place they lend me 190k I pay them 137 UKP a month for the privileged....

At the moment of course
BTL loans are not regulated.