Quarter of Brits on interest only mortgages

julieq

There's no more risk living in a house on an interest free mortgage than there is renting, frankly. The amount borrowed depreciates with inflation in real terms, and over even quite short periods that has a significant effect. During that time most people will see income increasing, and most people willl have a plan to repay the capital anyway. There's no reason why this needs to be visible, in fact it's far more sensible and flexible to build up a repayment vehicle outside the mortgage.

What's the worst case anyway? Get to the end of the 25 years and have a house worth more than four times the amount of the 100% initial loan, assuming 25 years at 3% (and not even bothering to compound that)? Wouldn't be difficult to remortgage on a short term repayment and most people will be earning four times more than they were at the start, on the same basis.

I'd certainly prefer that to 60 years renting and trying to find enough retirement income to pay rental in a pleasant place. You always still have the option of renting anyway, but would have a house with 75% equity to sell off which would certainly help with the pension fund.

But opinions differ.

julieq

Graham_Devon wrote: »

Errr, either way, it's the same, unless HPI has rescued you.

Over 25 years it most certainly would Graham.

Dan:_4

Graham_Devon wrote: »

Errr, either way, it's the same, unless HPI has rescued you.

Yes it is the same, but your house is guaranteed to be worth a lot more after a 25 year term.

Graham_Devon

julieq wrote: »

The amount borrowed depreciates with inflation in real terms, and over even quite short periods that has a significant effect.

No it doesnt, as your interest is likely to go up in inflationary environments, wiping out the gains on the actual base loan.

Graham_Devon

Dan: wrote: »

Yes it is the same, but your house is guaranteed to be worth a lot more after a 25 year term.

No, it's not guarenteed. It's likely. But demands good timing.

wageslave

Dan, I seriously suspect you have an interest only mortgage. As soon as you can afford it, switch to a repayment deal. Dont rely on anything or anyone to rescue you other than yourself.

shakerbaby

geoffky wrote: »

as long as you can afford payments is the key...

People seeking advice after falling into mortgage arrears more than doubles in year




Read more: http://www.dailymail.co.uk/news/article-1076138/People-seeking-advice-falling-mortgage-arrears-doubles-year.html#ixzz0P1uyn16e

This is very very scary news and don't anyone doubt it. :eek: Well especially if you are a bull with all your financial eggs in one BTL. :rotfl:

shakerbaby

wageslave wrote: »

Dan, I seriously suspect you have an interest only mortgage. As soon as you can afford it, switch to a repayment deal. Dont rely on anything or anyone to rescue you other than yourself.

Fantastic salient advice as always. :beer:

Dan:_4

wageslave wrote: »

Dan, I seriously suspect you have an interest only mortgage. As soon as you can afford it, switch to a repayment deal. Dont rely on anything or anyone to rescue you other than yourself.

Yes I do have an Interest Only mortgage. Always have done, and always will do. I pay a lump sum of the oustanding balance everytime I finish a fixed rate period. Should be paid off in 15 years, or maybe less.

chucky

Graham_Devon wrote: »

No, it's not guarenteed. It's likely. But demands good timing.

people move on average every 7 years (this may increase with this HPC) so it's worked historically and there is no reason why it would not happen again.

Graham_Devon wrote: »

No it doesnt, as your interest is likely to go up in inflationary environments, wiping out the gains on the actual base loan.

if this happened i suspect this would be reflected with wage inflation - they'd probably cancel each other out.
also, as you get older you'd be earning more so you'd have more opportunity to repay capital