i have no sympathy, if you cant afford it DONT BUY IT!!!!!
and for the record im just turned 38 and still living with my parents, yes i know the shame. but im not in debt up to my eye balls because i needed to move out.
People with Interest Only Mortgages
- Thread starter fez
- Start date
i have no sympathy, if you cant afford it DONT BUY IT!!!!!
and for the record im just turned 38 and still living with my parents, yes i know the shame. but im not in debt up to my eye balls because i needed to move out.
Associate
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They serve a purpose and if managed effectively can be perfectly acceptable as a means of providing accommodation and/or a tax-efficient means of realising a capital gain and paying off the debt in accordance with an investment strategy, that in many cases, might even cost less overall than taking a more traditional repayment mortgage.
There can be very good reasons for taking a lower repayment option at the outset of a mortgage arrangement for example to enhance cash-flow at a time in one's life where that is more desirable than accruing capital gain.
If you buy in London for example, given the likely significant increase in property value over time (and where the property is used as the principal place of residence), then any (again likely very significant) capital gain will be entirely tax-free and might for example be sold to realise the capital gain and then together with retirement and/or other income and investments over time, be used to fund the purchase of an alternative residence elsewhere. There are a lot of different ways and circumstances where an interest only loan might make sense.
I have no sympathy however for those people who acquired property using interest only and who either do not have an exit-strategy, or are labouring under some daft notion that they never realised they'd have to pay the money back to the bank. Its simple mathematics - if no one ever told them before they entered into the arrangement, then there might be an argument for some sort of contributory negligence, but Id find it very difficult indeed to believe that they were ignorant of the way the arrangement would work. It is after all, very easy to understand.
There can be very good reasons for taking a lower repayment option at the outset of a mortgage arrangement for example to enhance cash-flow at a time in one's life where that is more desirable than accruing capital gain.
If you buy in London for example, given the likely significant increase in property value over time (and where the property is used as the principal place of residence), then any (again likely very significant) capital gain will be entirely tax-free and might for example be sold to realise the capital gain and then together with retirement and/or other income and investments over time, be used to fund the purchase of an alternative residence elsewhere. There are a lot of different ways and circumstances where an interest only loan might make sense.
I have no sympathy however for those people who acquired property using interest only and who either do not have an exit-strategy, or are labouring under some daft notion that they never realised they'd have to pay the money back to the bank. Its simple mathematics - if no one ever told them before they entered into the arrangement, then there might be an argument for some sort of contributory negligence, but Id find it very difficult indeed to believe that they were ignorant of the way the arrangement would work. It is after all, very easy to understand.
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ok makes sense.
Considering it is interest only though, is it not possible that if she does negotiate a better rate due to a better LTV. Then say in 5 years sells the house, she will be left with no money because she is still paying an interest only mortgage and not paid off any of the house yet? I struggle to get my head around interest only and what happens when you sell the house and you still owe the bank all the money from the house and interest. Surely it could be in a position where you spend 15 years paying off a house with a £20k deposit and it increases in value but you end up with less than you started with?
Strangely though my sister mortgage is still at a higher rate than it would be to rent the same property.
Interest only mortgages are about as simple as it gets. Keep paying the interest and the amount you owe will never change, no matter what happens to the value of your house.
If your house value soars then you may be able to negotiate a better rate on account of having a better LTV, but unless you pay off any of the mortgage or borrow more you will still always owe the same amount.
You can end up with less than you started with if your house goes down in value, or fails to increase enough to cover the costs you paid for when buying and selling it.
If your house value soars then you may be able to negotiate a better rate on account of having a better LTV, but unless you pay off any of the mortgage or borrow more you will still always owe the same amount.
You can end up with less than you started with if your house goes down in value, or fails to increase enough to cover the costs you paid for when buying and selling it.
And as i have said, $500 a month at the start of a 25 year mortgage become peanuts at the end.
Who doesn't what next?
The don't "infallibly ensure" anything. Nobody suggested they have to. They are, however, under legal obligation to take reasonable measures to ensure everything has been explained to a degree such that any reasonable customer would understand.
All of which is orthogonal to the point: some brokers have actively deceived customers through miss selling or neglecting to perform said duties. Both of which are illegal.
Soldato
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I'm on an interest only for my BTL mortgage.
It's a great idea when letting your house as although you can (and i certainly do) overpay to get rid of the capital like a normal mortgage, it means if i were tenant free then i could drop back to interest only payments to avoid it costing me too much.
For me,
Rent = £485
IO mortgage = £205
I pay = £550 (so £345 in capital).
This is pretty much in line most mortgages of similar value.
My renter pays most of my mortgage for me, i just add another £65 into the pot (£550-£485).
Yes, as others have said, its pretty simple really. But you'd have to be pretty dumb to only ever pay off the interest.
It's a good way for 1st time buyers to get on the ladder, but most IO mortgages allow a 10% overpayment per year of the remaining money owed and people should certainly be aware of that.
It's a great idea when letting your house as although you can (and i certainly do) overpay to get rid of the capital like a normal mortgage, it means if i were tenant free then i could drop back to interest only payments to avoid it costing me too much.
For me,
Rent = £485
IO mortgage = £205
I pay = £550 (so £345 in capital).
This is pretty much in line most mortgages of similar value.
My renter pays most of my mortgage for me, i just add another £65 into the pot (£550-£485).
Yes, as others have said, its pretty simple really. But you'd have to be pretty dumb to only ever pay off the interest.
It's a good way for 1st time buyers to get on the ladder, but most IO mortgages allow a 10% overpayment per year of the remaining money owed and people should certainly be aware of that.
Well the idea is that the savings she makes by having lower interest payments should be saved/invested towards paying off the capital aspect. Very few people are savvy enough with investments to actually get a better ROI than property though (in the South East of England at least).
As an example, my ex's flat is now worth £265k, it was £153k when she got her homebuy mortgage for 75% of the property.
So over the past 5 years, her flat as gone up 73% in value, which is annual interest rate of about 13%. Standard savings accounts top out at 5%, so you are looking at riskier stock/share/etc investments to get higher returns. Properties in London as much safer.
If she were to sell up now:
£66k would go back to the government and builder as they own 25% of the property.
£199k would go to her. of which she would need to use (I think) £95 to clear the remainder of her mortgage.
Leaving about £100k after fees to put towards a new property.
Problem is, being London, brand new 1 beds are already hitting £300k, but this does mean she could get a mortgage at 66% LTV and not have to share any profits with anyone as she wouldn't need an equity loan like she did as a FTB.
Jesus.
Renters arent miserable? And they have done something. They've risked their capital in an investment. Feel free to do the same :l
Going to be interesting to see how the ambulance chasers deal with the floodgates when "were you miss-sold an interest only mortgage?" adverts hit the TV. Bet they are rubbing their hands with glee.
As with most financial compensation claims, the ombudsman tends to absolve the client from any responsibility. They may well have understood what they were doing but it costs folk nothing to roll the dice, claim ignorance and see if a claim sticks. From there it's all down to the supporting paper trial and even with good evidence, the ombudsman is just as likely to uphold the claim as throw it out.
As with most financial compensation claims, the ombudsman tends to absolve the client from any responsibility. They may well have understood what they were doing but it costs folk nothing to roll the dice, claim ignorance and see if a claim sticks. From there it's all down to the supporting paper trial and even with good evidence, the ombudsman is just as likely to uphold the claim as throw it out.
a buy to let houses rent is going to be more than the mortgage payments on the same house.
unless the letter is making a loss every month
not everyone has a very nice home environment.
and sadly its these people who get hit hardest.
Soldato
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Damn, I've always steered well clear of interest only, though can see why they would be appealing, especially during the boom.
A friend of mine bought a house about 15 years ago for around 50k and somehow now owes around 100k as he keeps borrowing against his mortgage, taking breaks etc. He also has 20k credit card debt and shows no signs of slowing his spending, despite having debt re consolidation.
His 3 daughters go horse riding every weekend (useful life skill) and they've just bought a dog.
I love the guy, but man he has his head in his ass. Some people really don't have a clue.
A friend of mine bought a house about 15 years ago for around 50k and somehow now owes around 100k as he keeps borrowing against his mortgage, taking breaks etc. He also has 20k credit card debt and shows no signs of slowing his spending, despite having debt re consolidation.
His 3 daughters go horse riding every weekend (useful life skill) and they've just bought a dog.
I love the guy, but man he has his head in his ass. Some people really don't have a clue.
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Dont they ask you when you apply for a interest only mortgage how you are going to pay off the balance?
Saving for deposits and paying mortgages is far, far easier when mortgages are harder to get and house prices are more inline with wages.
How is saving £500 a month towards a deposit even remotely sensible when house prices are rising (as they were) by £1000s a month?
Images over 1,280 pixels wide should be placed in spoiler tags as I've done for you.
Cheers
Surveyor
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Depends. But in comparison to the research they do and documentation they require concerning an applicant's ability to make interest payments, they don't care about the answer.
I've heard this argument before, but I really don't buy it. Even in affluent areas, you can get on the ladder with say a Shared Ownership scheme with only £6-7k in the bank. So @£500 per month, that's around 12 months.