End to Interest Only Mortgages????

treliac

julieq wrote: »

Anyone with an endowment policy based mortgage now has an asset worth many many times the purchase price of their house given HPI since endowments were available, and a shortfall which is probably less than a couple of percent of that value.

Either way, you're in the s**t if you haven't got the dosh when you need it and don't want to have to sell your house to raise the cash.

silvercar

treliac wrote: »

Either way, you're in the s**t if you haven't got the dosh when you need it and don't want to have to sell your house to raise the cash.

The obvious answer would be to take a short term loan or a repayment mortgage.

Afriend_2

My mortgage only needs repaid at the end of the term, until then I can offset savings against the balance or use the monies for other things. The balance accrues interest at 0.49 percent above the base rate.
Good for me = yes, good for the banks = probably not.

treliac

silvercar wrote: »

The obvious answer would be to take a short term loan or a repayment mortgage.

Not so easy if it times with retirement for example. It's tempting to think that people should all have transferred onto a repayment mortgage in good time (or taken some other form of preparatory action) but they won't necessarily.

As we know, some will never have found the extra cash and some will have buried their heads in the sand until too late. I'm sure there are also those 'out there' who still don't appreciate the situation they are in.

Thrugelmir

chucky wrote: »

extremely unlikely and virtually impossible that an interest only mortgage being more than the value of a property. it will be very small mortgage outstanding.

actually forget impossible - it's never happened and will never happened.

So your argument is that lenders should advance money on an interest only basis. When the mortgage term ends. The borrower sells up and moves into rental accomadation.

Mortgages should be based on peoples ability to meet the interest payments. Nothing else.

If no capital is repaid how do lenders then advance money to new applicants?

treliac

When we first took out a pension mortgage, I had no idea what rubbish we had bought into.

Looking back years later, as I pursued a misselling complaint, I realised that although we had thought we were in the process of buying our then house, we were in fact just 'renting'. God, how innocent and naive we were.

Afriend_2

Thrugelmir wrote: »

So your argument is that lenders should advance money on an interest only basis. When the mortgage term ends. The borrower sells up and moves into rental accomadation. ?

I'm not sure how you extrapolated to reach that conclusion.

Thrugelmir wrote: »

Mortgages should be based on peoples ability to meet the interest payments. Nothing else.?

Mortgages should be based upon how much the clients wants to borrow and the likelyhood of them being able to make interest repayments.

Thrugelmir wrote: »

If no capital is repaid how do lenders then advance money to new applicants?

Banks make money (or losses) by taking risks with other peoples money. They have a number of items on their balance sheet that they can loan money against. If the interest being paid is sufficiently higher than the interest they are paying out and no loss is incurred, their balance sheet improves. This allows them to lend more money.

Thrugelmir

treliac wrote: »

When we first took out a pension mortgage, I had no idea what rubbish we had bought into.

Looking back years later, as I pursued a misselling complaint, I realised that although we had thought we were in the process of buying our then house, we were in fact just 'renting'. God, how innocent and naive we were.

There is nothing wrong in principle in using a pension to repay a mortgage. Providing you understand the implications of the risk. For higher rate taxpayers who can afford the contributions it may prove a viable method. Though of course the 25% tax free sum has to be sufficent to discharge the capital owed.

For many the discipline of a straight forward repayment mortgage is ideal. As at least capital is being discharged albeit low in the early years. Rather than gambling by investing the money elsewhere in the hope of a better return.

treliac

Thrugelmir wrote: »

There is nothing wrong in principle in using a pension to repay a mortgage. Providing you understand the implications of the risk. For higher rate taxpayers who can afford the contributions it may prove a viable method. Though of course the 25% tax free sum has to be sufficent to discharge the capital owed.

None of that applied, nor was explained. It was a complete disaster. I don't think (with the benefit of hindsight) that the salesman understood it properly himself. It's a long story.

Thrugelmir

Afriend wrote: »

I'm not sure how you extrapolated to reach that conclusion.



Mortgages should be based upon how much the clients wants to borrow and the likelyhood of them being able to make interest repayments.



Banks make money (or losses) by taking risks with other peoples money. They have a number of items on their balance sheet that they can loan money against. If the interest being paid is sufficiently higher than the interest they are paying out and no loss is incurred, their balance sheet improves. This allows them to lend more money.

An interest only loan is just that. Or am I missing something? :rolleyes:

No. Mortgages should be based on what people can afford. We've just been through the scenario of what people borrowing what they wanted. Unregulated lenders and mortgage brokers amongst others did this.

No. Banks create money by using Fractional Reserve Banking. Banks incur bad debts as well. Out of the margin. They pay overheads, corporation tax, dividends etc.

Lets say NR makes a net 1% margin on lending for example. To cover its lossess on repossessions which are averaging £26k each. This means it needs to lend £2,600, 000 to cover this loss.

The figures are actually far worse as even in the good times bank bottom line profitability on assets is well below 1%.