[Closed] Mortgages - who's on a repayment and who's on an interest only mortgage?

Depends, are they also piling money away to pay it all off one day?

Daft in my opinion. With rates so low in my opinion it's a good time to pay down capital.

With low inflation mortgage debt isn't being inflated away like it used to be. And of course rising prices ain't going to last forever!

Depends, are they also piling money away to pay it all off one day?

How old are they? Some people don't plan further than a few years ahead.

i would say so.
saying that my other half has 60k of hers as interest only as that got her in the flat she wanted at the time. that could be paid off now but its going on an extension which is actually a better thing to do as the numbers make sense and she ends up with a property worth well north of 500k and 60-70% equity in the property.
me personally i don’t like the idea but thats nowhere near as dodgy as what your friends are doing (all IMHO)

How does the interest only mortgage repayments compare to the rental price for similar properties?

Seems odd to me. We're overpaying like crazy on our mortgage.

How old are they? Some people don't plan further than a few years ahead.

He has just bought a lovely Defender and is about to have it [url= http://twistedautomotive.com/ ]Twisted [/url] though so I can see why he wouldn't want to spend all of his money on little details like a home 🙂

We're interest only as I prefer to have control over my asset investment exposure.

We have investments in over 20 different assets the house being just one of them. We have amortised our mortgage from surpluses over the years to a point at which I don't want to reduce it any more but rather invest surplus now into other assets at a better rate than the current interest cost on our outstanding loan.

The LTV on our mortgage is sufficiently low that I have no concerns about the security of our home.

you say they're planning on doing so again? they might come unstuck if they can't prove a repayment vehicle.

Interest-only/offset mortgage here.

What I like about it is that I can see my offset savings account (don't specifically have to have one but I do), and at the start of the month I put anything left over from the previous month plus a chunk from this months salary after all the various payments go out.

I put a reasonably 'aggressive' amount from this months money in and then try to make it to the end of the month without pulling any of it back, so it is 'gamifying' my saving, a bit like resetting the mpg figure on the trip meter at the start of a trip and then trying to achieve a high mpg figure for the trip.

But if I have a bad month I might have to pull some money back into the current account.

I am about to get divorced so am moving to a cheaper place to free up some money for settlement whilst porting the same mortgage, and will have to spend some of the offset savings on doing this next place up as it is in a bit of a state. Having the money readily available in the offset savings account has therefore proven useful.

Unless your doing something like Stoner, interest only is madness!
FiL has found that out to his cost as was IO for at least 17 yrs, having many good holidays and pandering to MiL's spending habits (fridge that always resembled Fortnum & Masons) etc until his business went down the pan and the taxman caught up with him. He was going to pay it off and slightly downsize BUT housing market fell to bits at the wrong moment and he's had to sell up and massively downsize as well as equity releasing.

Someone will tell me ive been an idiot but we got our first home about 3 months ago, rented all the time before hand and we went for a repayment as we wanted stability, we pay £600 a month on a £125k mortgage over 25 years, the interest is crazy in my eyes, its about £55k in interest. But its cheaper than our rent was and we have a 3 bed house and a garden compared to a flat and we finish paying just before we plan to retire so it suits us. I thought it was being sensible and gives us the ability to plan the rest of our lives.

Ours is and always has been repayment. Luckily out bank wouldn't let us take more than 3x salary so we made do. We've been over paying as on 0.5% over Bank of England base rate tracker.

I have a friend however that had 248k on a 250k house on a self certification, interest only mortgage 8 years ago and still in the same position now. God knows how he sleeps at night.

Are you still able to get large interest only mortgages without proof of how you can pay off the capital? I thought the BoE had clamped down on that.

Footflaps - not really. You can get interest only BUT max loan to value in the region of 50%, minimum equity of 150k, lending limited to max 25 years or 65th birthday minimum income of 50k single name or 75k joint

And a repayment vehicle / plan BUT selling the home can be accepted

Repayment here....no way I could handle having that lump sum hanging over me. I know you are supposed to invest/save in the mean time to pay it off, but I would be worried about having enough to pay it off.

I don't understand most of what Stoner wrote.... 😆

don't understand most of what Stoner wrote..

Me too, I reckon it means he's minted and only has a tiny mortgage

Me too, I reckon it means he's minted and only has a tiny mortgage

In simple terms; (my) mortgage is 1.50% . My savings are at 3%. So no point in paying the debt down with savings if the investment is returning more. His is more complex.

Stoner is very quiet (polite) about the fact he is comfortable financially, he has mentioned it before, which is the nice way to do it. It means he is in a very different position to Joe Average though but good for him.

I'm repayment very fortunate that I bought a house when prices in this area were extremely low, I have a lot of equity so going to look at extending the house by borrowing more but still saving each month.

Might as well get something out of Brexit.

With the ease of access to ISAs that exists there's no reason any home owner can't be more efficient about their mortgage / investment arrangements. Its not a matter of wealth, it's mainly financial literacy.

I'm on a repayment. 3 year and 3 months to go, not that I'm counting. It's a massive amount monthly as I had to put money into my business in last recession to keep going..... It's a heavy repay but in just over 3 years I'm debt free and mortgage free. Can't wait. Oh yes... Age 53

With the ease of access to ISAs that exists there's no reason any home owner can't be more efficient about their mortgage / investment arrangements. Its not a matter of wealth, it's mainly financial literacy.

Not everyone can afford investments or ISAs.

What stoner has done

We are on repayment, we bought when the house prices were low, fixed rate ended just as the base rates dropped, we have been overpaying for a good few years now.
If the rates stay as they are my mortgage will be paid off around 6 years early and before i'm 55.
We have always timed house moves just right and stuck some of the profits into ISA's and partly lived off of those.

I go for the low risk approach to our home. We own it, not someone else.

But I can see why folk would have interest only for a few years, if needed.

With rates so low in my opinion it's a good time to pay down capital.

Nah it's a good time to use the cheap money to invest - long-term.... Done me well but I'm borrowing at 0.49% above BR.

52 and paid my mortgage off. It's a lovely feeling

As per Stoner, had interest only mortgage and held other investments, including shares, ISAs & cash offset that could have paid it off. Then we decided to move and do a renovation. If I had always been a slave to the capital repayment this would have been much harder to achieve. I have taken out 0% credit cards to put in ISAs before. The banking system can be gained from.. if you can be arsed

Think the key either way is not over stretching yourself with the purchase price in the first place (yes easier said than done with today's prices). We were offered a loan of nearly £400k but rather than max this out as many friends seem to have done we decided to look for property below the stamp duty threshold (the old £250k threshold). Observing the local market for over a year whilst renting we knew the place we bought was good value before getting another £10k off the asking price on negotiation. That £10k saved payed for a new kitchen, flooring, decorating and furniture throughout.

Reypayment mortgage over 15 years means total interest payed, despite us fixing for 5 years at the wrong time (interest rates were supposed to go up) is not that much. Overpaying every year too so hoping to have it all cleared in 10 years.

interest only can actually be a really good idea. Lets say the interest rate you pay is 3% and you have £1000/month to pay on a mortgage.

If you have a standard 25 year repayment mortgage, that'll get you £210,000 loan, so a £250,000 property with a £40k deposit

With the same figures, an interest only loan would get you £400k, so £440k with a deposit.

If house price inflation over the 25 years is 3% (not an unreasonable figure), house 1 is worth around £525k. House 2 is worth £925k. At this point, you could sell house 1, buy house 2 instead, pay off the loan with the remaining money (£400k).

So, if you do house 1 or house 2, the net impact after 25 years is the same, however, if you bought house 2, for those 25 years you've been living in a nice, big 4 bed detached house for the duration, not a small 2 bed terrace (looking at examples near here).

now obviously this is a gamble, if house price inflation doesn't get to 3% a year, you'll end up short on cash (although, if it was higher than 3% a year, you'd end up with a wedge of cash, tax free). but its a gamble some people would be very willing to take considering the up side (note: this isn't the direction I've taken, but I wouldn't consider someone who does take it 'stupid')

I originally bought my place with an interest only + endowment, the endowment should have been worth £40k on maturity but is looking more like high 20's. I added a second mortgage just over 10 years ago as a repayment. Fortunately I still have a fair bit of equity in the house and am now looking at remortgaging to one repayment mortgage and then will use whatever I get from the endowment when it matures to pay down some of the balance.

I didn't go through the whole miss-selling thing though as it didn't become apparent how much of a shortfall I'd have until after the complaint period had passed and I'd also been warned it was riskier (it was a bit cheaper at the time which mattered most to me back then...). Mind you had the adviser warned that there was a realistic chance it could end up being £10-20k less than it should be I'm sure I'd have gone with a repayment...

I've always been repayment, I don't have the patience to manage the investments needed to pay it off. I'm wary of endowments for obvious reasons (a 25% shortfall like fuzzy above would be ruinous).

It's my intention to have it paid off 10 years early through overpayments - though I'm tempted to get some more cheap cash and build that loft conversion now Brexit is here...

Fixed last month at 2.39% for five years, repayment and mortgage will be paid off by end of the term.

The banking system can be gained from.. if you can be arsed

And IF you have a pretty numeric way of looking at things. An artist mate of mine is brilliant at what he does but away with the fairies when it comes to finance, does he listen to a mate ? A financial advisor who has his or her own interests at heart ? Its sometimes not as easy as saying that folk are just lazy

I created a spreadsheet for helping people to understand how mortgages work. If interest only you can take the monthly capital amount and invest that or if you have a flexible enough mortgage over pay by that amount and treat it as a repayment mortgage.

https://docs.google.com/spreadsheets/d/1cLH5NU8s4ghbiB7wlc_a1obAcjXdY59TZuW5jhStqjc/edit?usp=sharing

I'm currently on a 50/50 mortgage.

We've just come to a stage where we are able to overpay on the interest only part of the mortgage but I'm sure sure which way to go.

We can either...
• Overpay to get it all cleared within 10 years.
• Re-mortgage and get it all on repayment over 10 years.
• Or put the overpayment money into ISAs and other savings.

We are currently on a tracker at 1.25% above base rate for the life of the mortgage.

Stoner is very quiet (polite) about the fact he is comfortable financially, he has mentioned it before, which is the nice way to do it. It means he is in a very different position to Joe Average though but good for him.

What Drac is trying to say is that Stoner owns most of Worcestershire as well as a Château and vineyard in France and a Caribbean Island etc....

I know someone who is in their forties, both only children, both only one surviving parent and their repayment "vehicle" for latest house is to inherit. Sounds odd at first, but why be cash poor for 25 yrs in the prime of your life and inherit and become cash rich as you are about to return.

mudshark, thank you. That's great

I know someone who is in their forties, both only children, both only one surviving parent and their repayment "vehicle" for latest house is to inherit. Sounds odd at first, but why be cash poor for 25 yrs in the prime of your life and inherit and become cash rich as you are about to return.

Great plan ..... except knowing that my parents were both cash and time poor bringing me up - i told them to spend it all , leave me nothing have a good time just dont leave the surviving saddled with debt.

The are currently motorcycling their way round europe(which oddly enough is dads psychiatric rehab prescription for his head on with a van in france last year)

Just switching to repayment. Currently getting my ex-wife removed from the mortgage. Means my payments are about to go up by £500 a month 😯 but it's manageable and part of my plan anyway

And IF you have a pretty numeric way of looking at things. An artist mate of mine is brilliant at what he does but away with the fairies when it comes to finance, does he listen to a mate ? A financial advisor who has his or her own interests at heart ? Its sometimes not as easy as saying that folk are just lazy

Exactly that, and it's all a matter of personal choice and what's right for one person isn't for another.

Personally, mortgage free on residential property and interest only on a rental property investing the renatl income to provide a better return than if paying a repayment mortgage. When the mortgage term expires I have the flexibility to either:
1. spend my investment to own the property outright,
2. remortgage on another buy to let ineterst only, or
3. sell and take the equity keeping my capital investment

It'll depend on a mix of things. My personal financial needs at the time, the financial climate etc

We're interest only on our own home and on 1 property I rent out. Mortgage on our home is due for repayment in 3 years but we'll be paying it off in a couple of months after the sale of another property goes through. We don't plan on buying another house that we would need a mortgage on.

The mortgage on the other property is peanuts and costs me £52.98 a month, rental income per month is more than 10 times that. That mortgage has 6 years to run but I'll probably pay it off before then as I retire in 6 years so would prefer to be debt free by then, although being totally debt free at 50 is something to aim for so may pay off sooner.

We had a plan and it worked out, don't think I would do it now but my attitude to risk was different 20 years ago. And low interest rates have done us a real favour.

Bloody hell, what school of finance did they go to???

He sounds mental!!! Twisting a Defender.....a massive sign! 🙂 all that money on something that is only going to lose money.

Seriously though, NOW is the time to be over paying whilst interest rates are so low. I do hope they're squirreling away thousands each year.

its a dangerous game they're playing. Not something id be comfortable doing unless i had thousands sat doing nothing.

defenders are not losing money at the moment

mine is worth more than when I bought it in sept

Yes interest rates are low but not as low as they should be.

Did anyone catch the R4 programme this morning with lady saying if you want to stimulate the economy force the banks to BOE interest rates in their lending.

There basically just skimming off 2-5% lending government money back to us.

Think the key either way is not over stretching yourself with the purchase price in the first place (yes easier said than done with today's prices). We were offered a loan of nearly £400k

This is it really. When I applied for our last mortgage I wanted £195k and was astonished to be offered over £300k. Lots of people would have taken the extra but we didn't and when I was made redundant a few years later I was very glad we could afford a large pay drop for me and I could go work as a bike mechanic.
That £195k about 8 years ago is now down to just over £70k and we're overpaying as much as possible. Or mortgage payment is basically my pay packet every month.
Also, when we moved we had 19 of 25 years left to pay but just added the extra on without extending the term. I recon we'll have it done start to finish in about 19 years and we should be mortgage free sometime when I'm still 50.
That's all I care about, get it gone fast them drop to a 4 day week.

What Drac is trying to say is that Stoner owns most of Worcestershire as well as a Château and vineyard in France and a Caribbean Island etc....

That may well be true, but he no longer owns all of his fingers 😈

Repayment here and currently on SVR, but seeing as we have less than £2k left to pay, no point doing anything else (came off a fixed deal a few months back). Very much looking forward to that day in a month or two when we are mortgage free 😀

Got pals in a similar situation to the OP. Both of them, however, are single children of elderly (single) parents that own outright their decent houses. Their somewhat risky decision is basically when one of the parents croaks it then their IO mortgage is covered instantly.

Suppose it makes sense - use their money whilst relatively young to enjoy themselves.

That's great but if the oldies cling on, have a serious chronic disease and have to self fund care through the sale of house/release of equity they'll be Donald Ducked

That's great but if the oldies cling on, have a serious chronic disease and have to self fund care through the sale of house/release of equity they'll be Donald Ducked

Not if you treat them to one last holiday in Switzerland first.

Repayment for me, currently fixed at 1.99% for another year.
Hopefully paid off in 8-10yrs (mid 40's) then either rent it out to pay mortgage on somewhere bigger, or use money previously assigned to repayments to aggressively grow the early retirement fund.

Still think an offset, if you can get a good rate, is the best idea.

And I am surprised no-one else has said that as I have seen quite a few comments along the same lines on this forum.

(As long as you don't let the offset savings go above 75k)

That way you have easy access to the savings if you need them, such as for a job loss, or for emergency repairs, etc, but they are still reducing the amount of interest you are paying, in the same way a less flexible repayment mortgage would have done.

Repayment, fixed now. Have a family, a reasonable mortgage (with very high LTV) and no expectation of inheriting a pin so this is somewhere I won't gamble on.

Had a repayment years back but paid into a PEP as vehicle.. moved to the fixed but made a bigger dent from the PEP than I would have from repayment.. which could of course gone the other way easily.

With the ease of access to ISAs that exists there's no reason any home owner can't be more efficient about their mortgage / investment arrangements. Its not a matter of wealth, it's mainly financial literacy.

Not everyone can afford investments or ISAs.

We're not talking about everyone though are we, we're talking about homeowners. If you can afford a mortgage then you can afford investments and ISAs, along the lines that Stoner has described. Anyone suggesting otherwise would be financially illiterate 😉

The OP's pals are probably being fairly financially risky and planning poorly however unless you have access to their bank accounts and full finances OP you might be judging them wrongly. Unlikely but possible. Also frankly - it's their decision so why comment?

I stayed interest-only for around 11 years - tiny payments allowed me to take a year off having fun aboard, go freelance and work part time ever since, and support my other half through a 2-year course to get the job she wanted. House nearly doubled in value and the equity enabled us to move this year to the house we really wanted. Now on a fixed repayment. Worked out well for us through a mix of luck and design, although we've now got a (manageable) 17-year mortgage to pay. Might not be as daft as it sounds, though we're not extravagant materially, which might be your friends' downfall.

Interesting thread, I have been thinking about this myself.
My old dad (God bless him) scrimped and saved and went without to pay off his mortgage, which he achieved. Sadly he died of a heart attack less than a year later (aged 52). My brother did the same, cancer aged 53. My brother in law, cancer, aged 56. My very good mate, brain hemorrhage aged 50. Can you see a pattern emerging?
Should I live now, while I am alive, or pay off the mortgage to leave a bigger inheritance?

altgreen - I used to refer to my mortgage as my 'fun now, pay later' mortgage when my mates took the piss. They'll pay theirs off before me, for sure, but I have no regrets. I did some great stuff when I wanted to do it. Stuff I didn't want to wait until my 50s or 60s to do, or miss altogether due to ill health or worse. Sounds like your family have it particularly rough though. Rotten luck, that.

Can I just ask ..... What effect will the interest rate cut have when I come to re mortgage in November?

Also where are people getting fixed rates at 1.99% etc!!

Would people have the same opinion of someone who is renting? At least if you are on a interest only mortgage you have the option of downsizing when you retire. Assuming the equity will clear the loan.
wl: I have reached the ripe old age of 56. I feel like I am on borrowed time to be honest!

I guess I'm privileged. I bought when prices were low, and moved before they really shot up, as a consequence my mortgage is only about 45% of the house's value. I also started paying into various savings vehicles as soon as I turned 18 (my Dad started the first one for me while I was at University) and all told they've raised sufficient now that about half of the capital is covered. So in the end I'm interest only on about 45% of the value of my house, and I still have to find about 25% of its value.

That should come from the savings vehicles, but there's also an inheritance that will come at some point. I've spoken many times to them to make sure they aren't scrimping but they don't want for 'owt and want to make sure their kids and grandkids enjoy the luck they had over buying and investing at the right times, and i can't tell them how to spend their money. There is a chance as with everyone that illness might change that - hence I'm trying to make sure I cover my debts independently anyway.

Which puts me in a slightly odd situation. I live a fairly prudent lifestyle, I don't struggle but i don't 'waste' either. I could very easily cash out my savings and live a great life, with an inheritance safety net below me, and below that another net of sell the house and rent from salary plus positive equity. So my parents aren't particularly enjoying their good fortune, and my best years are passing without me enjoying it either. Maybe my kids will......

I have an offset mortgage of circa £300k that is fully offset. I draw the money out periodically to buy cheap reposession houses that I can then sell on and make money from.

Works well for me.

I agreed mortgage in 1999 that was 1% below base rate for life - let's just say it's done well since 2008

altgreen - I'm sure you're not on borrowed time really, and hope that's that case. Still, if you feel like that, make the most of it by using that feeling to motivate you to do everything you want to do as soon as you can! I don't want to sound morbid but plenty of research shows that most people's biggest regrets at the end of their life include not having done more of the stuff they really wanted to. Working too hard and worrying about money too much are two of the other top 5 regrets.

Oldman - so you actually *make* money from your mortgage? Isn't there some small print????

We've just bought a new house and signed a 5year offset at 2.28%, plan to overpay and clear it in 6-7 years. Our last mortgage was an offset too and paid off early. I think if you can plough plenty more cash into your mortgage it's a great option.

We bought 2yrs ago, fixed rate, not sure of the interest rate but it's approx 5% which is pretty high I think. However, it's a known sum going from the bank account every month; I've gone to uni (in my mid 30's) and due to finish next May-ish and expect once I've got some reasonable cash coming in, we'll work on saving and getting the (renovation job) house looking something like to then sell it on, allowing us to move to (hopefully) a larger house.

I'd have to have a very well trusted financial adviser who has my/family interests at the core of any decisions - something which I think as likely as an honest criminal.