Viewing 40 posts - 1 through 40 (of 74 total)
  • Interest only mortgages
  • piedidiformaggio
    Free Member

    Not discussed here already? Didn’t find anything doing a search, sure someone will chastise me if there is a thread already.

    Anyway, how stupid to people have to be to not work out how they are going to repay the capital?

    Financial Darwinism in action

    mikewsmith
    Free Member

    Anyway, how stupid to people have to be to not work out how they are going to repay the capital?

    From 97 house prices rose fast with no sign of a drop, do I need to post the scotsman claiming he had ended boom and bust (well nearly there as he helped us into bust with no sign of an out)

    yossarian
    Free Member

    Financial Darwinism in action

    not necessarily. thats a very simplistic judgement.

    mrmo
    Free Member

    is it though…

    You have a situation where everyone “in the know” raves that house are a sure bet the price only goes one way etc. You only have to look on here the number of people who buy a second BTL home as a pension to see people still believe this.

    Then you have a situation where interest only is less than the rent, you can’t be evicted assuming you make the payments, unlike a tenant. 25years is a long time…

    That the situation was allowed is scandalous, but people playing a game.

    Just wait for the next government bailout, wouldn’t want the banks to take a hit would we.

    Could also mention Osbournes 20% loans, what happens if the market is flooded by repo. interest only mortgages at the end of the term???

    ononeorange
    Full Member

    To be fair, I assume that most people taking out such products have an alternative capital source available to them at some point in the future. They must do.

    HoratioHufnagel
    Free Member

    How much have house prices risen over the last 25 years? Even if these people have to sell up, they’re going to be massively in profit.

    warton
    Free Member

    a couple of my friends were buying flats in the early 2000s, all interest only, all buy to let, rent just covering the mortgage. haven’t spoken to them recently, but last I heard things were not going well.

    I almost got involved, pleased I didn’t tbh.

    trail_rat
    Free Member

    ok – let me rephrase that cheeseyfeets quote…

    “how stupid do people have to be not to work out that prices wont rise for ever.”

    The endowment folk i can understand – others who just took interest only and relied on inheritance and value increases….

    your house is only worth what its worth when you sell it …. any other time its only worth what its insured for.

    br
    Free Member

    Anyway, how stupid to people have to be to not work out how they are going to repay the capital?

    I reckon its only looking at the endowment policies. And we’ve one that has really cheap critical-illness included, so we’re still continuing it, even though we’ve paid off our mortgage.

    So I wonder how many others are the same?

    samuri
    Free Member

    Then you have a situation where interest only is less than the rent, you can’t be evicted assuming you make the payments, unlike a tenant. 25years is a long time…

    I know more than one family who have taken this approach. It was much, much cheaper to take out an interest repayment only mortgage than it was paying rent with the added advantage that there’s a distinct possibility that at some point in the future, they could sell and possibly make some money out of it.

    My niece is one of these people. She has a large family and the house they pay interest only on costs her around 300 quid a month. A repayment on the same house would be more than twice that. Sure, I’ve we’ve all helped her out with the deposit but that’s what you do for family.

    mikewsmith
    Free Member

    your house is only worth what its worth when you sell it …. any other time its only worth what its insured for.

    which is what I though before leaving the country and a 2 bed terrace in lovely rossendale, couldn’t quite get the angle of impact with the van in reverse……

    mudshark
    Free Member

    Anyway, how stupid to people have to be to not work out how they are going to repay the capital?

    Financial Darwinism in action

    I’ve always had interest only mortgages, reckoned I could use the money to get a return greater than the interest rate – so gearing. Worked for me, paid off my mortgage any my house ain’t a cheap one so happy how it’s worked out.

    Gotama
    Free Member

    Why bother repaying the capital piedo? How about letting the debt evenutally erode itself through inflation whilst you make your capital, which in your supremely intelligent plan you are blissfully ploughing into your house, work harder elsewhere.

    I’d agree the marketing associated with such schemes should be addressed but interest only may not be the stupid call its perceived to be.

    rogerthecat
    Free Member

    ononeorange – Member

    To be fair, I assume that most people taking out such products have an alternative capital source available to them at some point in the future. They must do.

    Are you a purveyor of these products? If so, do you have no duty of care?

    Gary_M
    Free Member

    Anyway, how stupid to people have to be to not work out how they are going to repay the capital?

    You don’t have much of a clue do you?

    I bought a flat in Aberdeeen in 1996 for £25k, lived there a year and rented it out ever since and in that time I’ve earned over £80k in rental income. At the moment the interest only mortgage costs me £52.99 a month and I earn more than 10 times that in rent.

    Its now worth at least 5 times what I paid for it.

    Yep I’m an idiot.

    piedidiformaggio
    Free Member

    To be clear, I’m not saying interest only mortgages are stupid, just the people to make no provision to repay the capital or assume they don’t have to repay it.

    If you plan correctly and it’s a sound plan for you, then that’s great.

    Having to sell your home to repay the capital and downsize, possibly massively, strikes me as a daft position, particularly as nobody knows what they will realise until that sale is made. What if it doesn’t sell for a year, what’s the lender going to do? Grab the home off you, sell it at auction for way less than market value and give you the pennies left over?

    EDIT: GaryM – you clearly have a way of repaying, so it works for you

    I’m talking about people like the one in this article
    http://www.bbc.co.uk/news/business-22366821

    uwe-r
    Free Member

    Nothing wrong with it as a concept as long as you know what you are doing. Possibly miss sold to a lot of people and it also appeals to those running a high risk approach to their finances so no surprise it is getting some attention.

    vinnyeh
    Full Member

    Interest only is a sensible way to purchase a buy to let.

    With respect to homes for personal use, it’s not actually a problem with the mortgage is it, it’s with the investment vehicle supposed to be used to repay it- returns over the last couple of decades have fallen off a cliff. Additionally there was no enforcement of the requirement to make arrangements to repay the capital. Up until the mid nineties real returns were better than the original projections, often giving a surplus.

    stumpy01
    Full Member

    There was a stat on the BBC news about an hour ago saying that 1 in 8 people who have taken out Interest Only mortgages, didn’t even realise that it meant you were only paying back the interest, not the capital!!
    😯

    deserter
    Free Member

    I know 2 people who have done it,
    one bought a far more expensive house than they could afford if they went repayment with the plan being that at the back end the appreciation on the property will be worth more than having paid off a cheaper house-a gamble but one that could work I suppose
    the other one said “whats the point in paying it off thats what the life insurance is for and I can spend the money saved now”-wouldn’t fancy that in my retirement years myself but hey ho

    depends on the market you buy in, my first house was before the boom and my mortgage{repayment} was far cheaper than renting so a no brainer, nowadays a mortgage can be a fair bit more than renting so it gets into grey areas on whats best financially especially if it will take you to 65 paying it off

    amt27
    Free Member

    Anyway, how stupid to people have to be to not work out how they are going to repay the capital?

    complete rubbish, all this is simply propaganda by a government and banking system which are both seeking to raise profits for the financial service sector,

    the financial crash caused interest rates to plummet, anyone with a tracker interest only mortgage is quids in on a big scale, which is hurting the banks, they want rid of these customers,

    anyone with one of these mortgages who has a bit of financial nous could save away and pay of the capital as and when, either that or when the full term of the mortgage is up the value of the capital will be far less due to inflation, or are the FSA admitting there will be no house price rises in the next 15-20 years?

    clubber
    Free Member

    People in not understanding finance shocker! 🙂

    I know someone who works in Finance who didn’t realise that he’d ‘bought’ his car on a leasing deal and had to pay a significant amount of cash after three years if he wanted to keep his shiny pride and joy. He didn’t… Like many he just wanted the car now and didn’t really care how he got it (or at least not enough to really check whether it made sense).

    hh45
    Free Member

    Interest only was a classic boom time moment – ‘lets forget all the lessons of good, prudent banking learnt over the centuries and re-invent the wheel’. On this topic, yes banks were a bit daft but hardly negligent. It would be gratuitously unfair on everyone else if the interest only borrowers got compensated such that their capital was repaid for them.

    rebel12
    Free Member

    Gary_M – Member

    Anyway, how stupid to people have to be to not work out how they are going to repay the capital?

    You don’t have much of a clue do you?

    I bought a flat in Aberdeeen in 1996 for £25k, lived there a year and rented it out ever since and in that time I’ve earned over £80k in rental income. At the moment the interest only mortgage costs me £52.99 a month and I earn more than 10 times that in rent.

    Its now worth at least 5 times what I paid for it.

    Yep I’m an idiot.

    Not an idiot I would say, more of a big problem for society. It’s partly because of greedy landlords and leaches that house prices have bubbled, making them unaffordable for families with young children simply trying to put a secure roof over their head.

    phil.w
    Free Member

    In some respects, even with no plan to pay off the capitol it’s not stupid, it’s almost no different to renting. Unless the value of the house goes up, then it’s like renting with a bonus payout when you sell.

    And also, who takes out a mortgage and expects to be on the same terms for it’s life? An interest only can be an effective tool to make getting on the housing ladder affordable.

    jonba
    Free Member

    Rely on inflation.

    My parents bout a house when they got married and sold it for 10 times that years later. The total house price was less than a deposit these days so if you plan to stay somewhere for a while it could work out. You house will be the same price and your wages will rise with inflation.

    In recent history house prices rose much faster so you bought a house for 150k paid the interest, sold it a year later for £180k and pocketed the difference. You can see why this would be attractive to people whoc didn’t think it through.

    pjm84
    Free Member

    the financial crash caused interest rates to plummet, anyone with a tracker interest only mortgage is quids in on a big scale, which is hurting the banks, they want rid of these customers

    Changed Nov 2008 – Lifetime tracker of 0.82% plus the base rate. So have been paying 1.32% interest over the last 4 years or so.

    anyone with one of these mortgages who has a bit of financial nous could save away and pay of the capital as and when, either that or when the full term of the mortgage is up the value of the capital will be far less due to inflation

    Paid £37k off the mortgage since 2009.

    Plus we’ve also put Solar panels up which generate a 23% return on capital.

    I’m an idiot because the Bank at the time suggested a 3yr fixed deal which I declined so we had to sign a waiver which acknowledged that we didn’t take their financial advice.

    pjm84
    Free Member

    Not an idiot I would say, more of a big problem for society

    I’ll get the biscuits.

    andrewh
    Free Member

    Why does no-one ever talk of mis-buying?
    There was a woman on the radio today with one of those mortgages saying “I don’t really understand it” Well don’t sign anything you don’t understand! These mortgages are a risk , and can work well for those who have understood the risks and have mitigated/accepted them but if you’ve just bought something you know nothing about then don’t expect anyone else to bail you out.

    MrTall
    Free Member

    As AMT27 says, i’m not a great customer for my bank at the moment.

    I went interest only 7 years ago as my monthly income can change with bonus so i liked the option to be able to pay chunks off as and when i decided to, rather than set monthly costs of repayment.

    For the last few years my mortgage rate has been 0.98% so instead i’ve filled up my cash ISA’s where i’m getting 2.75% and i’ll decide to pay a bit more off in the future when the rate situation changes.

    I’m sensible with my finances and know i’ll pay it off one way or another. It’s the people who bury their heads in the sand and then try to blame others for their stupidity/greed that annoy me.

    My best mate owes £250k interest only and has not paid a penny off it in the 6 years he’s had it. No savings either. I wouldn’t be able to sleep at night. He knows the risks though and is happy with it.

    clubber
    Free Member

    He knows the risks though and is happy with it

    I guess that the question is what alternatives does he have. If he can’t save enough for a deposit, etc and the only other option is renting, is he paying more or less on interest only? It could be an (inadvertant by the sounds of it) good decision for him..

    MrTall
    Free Member

    He had a sizeable deposit although a large chunk of that would have been eroded as he bought at the top of the market. He’s playing the long term game, hoping that house prices will increase.

    He also increased his debt my getting a BTL as well! He’s not exactly the risk averse type and things tend to work out for him in the end. Although he’d have been buggered if interest rates hadn’t fallen so much and halved his monthly repayments.

    The thought that anybody has the nerve to try and claim ‘mis-selling’ by saying they didn’t understand infuriates me. If you don’t understand, don’t sign. Simple. most of these people were just greedy and would ask enough advisers until one eventually helps them, even if others had said they couldn’t afford it.

    clubber
    Free Member

    I know what you mean and funnily enough had the conversation with my Dad who had an endowment that didn’t work out as hoped – he was honest enough to say that he fully understood the risks so it was his issue.

    But some people clearly were mis-sold. You don’t always know that you don’t understand, particularly if someone is trying to ensure that you don’t!.

    Gary_M
    Free Member

    Not an idiot I would say, more of a big problem for society. It’s partly because of greedy landlords and leaches that house prices have bubbled, making them unaffordable for families with young children simply trying to put a secure roof over their head.

    someone doesn’t understand capitalism.

    ScottChegg
    Free Member

    He knows the risks though and is happy with it.

    Yes, he can have no house now, or no house in 25 years.

    Not such a hard decision when it’s raining right now, is it?

    mrmo
    Free Member

    someone doesn’t understand capitalism.

    and we don’t live in a capitalistic society where supply and demand are balanced. If we were in a truely capitalistic society more houses would have been built and banks would have been allowed to fail….

    djglover
    Free Member

    Most of these people were either betting their income would go up or they could downsize when the time came.

    I’ve done both in the past.

    I’m sure there is an element of people who are just intent on paying the interest and see what happens in 25 years, but there is a fair chance that they would be in a better position than in renting if there had been any capital growth,

    So I’d say most of these people had taken a sound financial decision based on their options at the time

    Moses
    Full Member

    I suspect that a fair few BTL properties on interest-only loans will be sold at fire-sale prices, & will start a drop in housing prices in a few years time.
    I’ve avoided interest-only loans precisely because the future is uncertain.

    anagallis_arvensis
    Full Member

    why, surely that will only happen if they cant rent them out and the rental market seems good, surely they will just keep renting and hope?

    chakaping
    Free Member

    My business partner had one – I say had because she paid it off in full last year.

    She liked the flexibility to pay as much off the principal sum without penalty whenever she liked.

    Not suitable for everyone though, perhaps.

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