Interest only mortgages

Raggie

CB1979 wrote:

we have plenty of time to start paying back on a repayment mortgage.

Ok.. trying to bite my lip here..

I fully apreciate that an IO loan is the best way for may people to get on the property ladder.

I understand that people have a right to own their own home.

I understand that people feel that owning their own home is a right of passage

I undertand the feelling of fredom when you finaly have your own property "good old bricks and mortar"..

but.. and here is where I stick my 2p's worth..

I was always told.. and see it repeated here daily that the first rule of finacial management is to reduce debt.. an IO mortgage does not reduce debt.. it only serves it..

I am concerned.. and in a nce way.. that so many see an IO mortgage as a safe bet.. a cheap way to get on the ladder and to own their own home..

so many do not seem see an IO mortgage as a debt.. they see it as a problem that they can worry about tomorrow.. they will find a way to repay it when the time comes.. they will sell their house.. or switch to a different kind of loan later on..

what if house prices do not rise..

what if later in life you are to sick to work and can not re-finance..

what if you are sqandering the best oppotunity to reduce the value of your loan and get nearer to owning your property outright debt free...

now I am not a finacial advisor.. just a man that has been paying mortgage payments for the last 15 years.. who initialy borrowed £48K to buy a house. .and now.. because of cars, new kitchen.. "Improvements" and house price increases now owes £91K.. . I begin to question my own judgement when I was younger.. the I will work it out when I am older.. approach did not work for me..

Now I am 36 and faced with finding £91K + Interest from somewhere before I retire.. now is it me or do I worry too much....

personally I think IO mortgages should be banned..

CB1979_2

that's the beauty of this forum and country everyone is entitled to their opinion

but as i said for me/us, it was the best option just to get "aclimatised" to the new cost of living, again we pay £250 a month in rent includes all bills, but we do pay for our own shopping and shared toileteries/cleaning products etc.

so all in all costs us about £500 a month for everything, BUT in our home, it's gonna be at about £1k more, we have a fixed IO mortgage for 2 years then we are going to be getting a repayment mortgage, by then we will know what we can and can't do.

we earn about £65-70k between us, and I have no debt (except for student loan) and I personally have about £30k in my savings account.

obviously there are people out there, that live beyond their means, etc etc, but I for one do not, it's purely just the more "sensible" way to do it for us.

we decided there was no point, in getting repayment mortgage if after a few months we couldn't afford the extra £2-300 a month, so went for that option instead

kenshaz

CB1979 wrote:

that's the beauty of this forum and country everyone is entitled to their opinion

but as i said for me/us, it was the best option just to get "aclimatised" to the new cost of living, again we pay £250 a month in rent includes all bills, but we do pay for our own shopping and shared toileteries/cleaning products etc.

so all in all costs us about £500 a month for everything, BUT in our home, it's gonna be at about £1k more, we have a fixed IO mortgage for 2 years then we are going to be getting a repayment mortgage, by then we will know what we can and can't do.

we earn about £65-70k between us, and I have no debt (except for student loan) and I personally have about £30k in my savings account.

obviously there are people out there, that live beyond their means, etc etc, but I for one do not, it's purely just the more "sensible" way to do it for us.

we decided there was no point, in getting repayment mortgage if after a few months we couldn't afford the extra £2-300 a month, so went for that option instead

Looks like you are an astute couple with a good income ,life is a gamble ,but if you do not take it ,you could be left behind ,this way you will have the home you want with potential for growth ,less risk less gain ,higher risk more gain ,

meanmachine_2

kenshaz wrote:

We do not know if the market has peaked,I wish I had a crystal ball ,no -one knows really,so it is a gamble ,but think of your purchase as long term and a home ,and if interest only allows you to afford it and you can meet the payments long term go for it

I wish people would stop coming out with this claptrap.

"if interest only allows you to afford it" it means you CAN'T AFFORD IT.

Some people...:rolleyes:

RHemmings

kenshaz wrote:

Looks like you are an astute couple with a good income ,life is a gamble ,but if you do not take it ,you could be left behind ,this way you will have the home you want with potential for growth ,less risk less gain ,higher risk more gain ,

But that's not what risk means. High[er] risk means that alongside any potential larger gain, there's also the possibility of a thumping great loss.

Edited text: Sorry, I wasn't going to reply in this thread until it had petered out.

kenshaz

meanmachine wrote:

I wish people would stop coming out with this claptrap.

"if interest only allows you to afford it" it means you CAN'T AFFORD IT.

Some people...:rolleyes:

So why then have hundred of thousands of people managed to own their own homes because they cannot afford it,having a mortgage means that you cannot afford to buy it out-right.I could not afford my mortgage when I took it out ,now it is paid off and worth treble what I paid for it.Please do not use personal comments,that might be appropriate for you,and yours ,but I am afraid it is unacceptable to others

kenshaz

RHemmings wrote:

But that's not what risk means. High[er] risk means that alongside any potential larger gain, there's also the possibility of a thumping great loss.

Edited text: Sorry, I wasn't going to reply in this thread until it had petered out.

definition of risk ---chance or possibility of danger ,loss,injury or other adverse consequences----so if you do not want the risk ,play safe ,feel secure,but crossing the road is a risk,so stay at home if you are worried.
It all depends upon your personality ,that is why we have soldiers ,firefighters and accountants and bank workers,it is all about choice

RHemmings

kenshaz wrote:

definition of risk ---chance or possibility of danger ,loss,injury or other adverse consequences----so if you do not want the risk ,play safe ,feel secure,but crossing the road is a risk,so stay at home if you are worried.
It all depends upon your personality ,that is why we have soldiers ,firefighters and accountants and bank workers

I'm not sure I get your point. There are risks and there are risks. Some risks are worth taking because the potential rewards of success outweigh the potential loss. Other risks are not worth taking. Think about tossing a coin. Imagine that I bet that if the result of a coin toss is heads, I give you £10, but if it turns up tails, you give me £5. If you were a betting person, then you'd take the bet. Now imagine that I bet that if the result of a coin toss is heads, then I give you £100, but if the result is tails, you give me £500. There is higher risk, and the potential of higher return (£100 versus £10). But the risk is no longer worth it, and if you are smart you would refuse the bet.

Buying a property in the current market is a similar sort of bet, but we don't know what the future outcome is going to be. So people need to think carefully about what might happen if they buy a house. Prices might go up, or they might go down. If they do go up or down then you need to think carefully about how much they might go up and down. Then you need to make a sensible, rational, decision about what to do.

There seems to be an attitude on many boards, possibly including this one, that taking risks is "good" or "brave". Sort of like a financial "macho" culture. Given the history of a long rise in the market, I can see how such a psychology could develop, as many risks would have been taken and come up trumps. So it's easy to forget about the potential life-damaging consequences of taking a risk in the property market that comes a cropper. Losing a deposit that took years to save or similar.

What I think is important to consider is that the risks and potential losses and rewards of purchasing a house depends on the current state of the property market. Despite what The Daily Express and similar papers might say, I don't believe (and yes, I'm talking beliefs) that there is much further up that the property market can go. So potential rewards are limited. But in areas such as mine where there is no population growth, supply is growing, and wages are not growing, why have houses gone up? It looks like a speculative bubble to me, and those have a tendancy to pop when the prices stop going up. So my beliefs are that I'm looking at a potential of small gains, and a good probability of large losses. It looks a lot like the latter of my two coin flip bets above, and therefore it's sensible not to bet.

But that doesn't mean that I won't ever buy a house. The market changes year after year in a cycle, and I believe the time will come when houses are more fairly priced compared to wages. At that point buying a house would be much more sensible, and I intend to do so. If I was talking about small bets, maybe betting 5p a time on the roulette wheel, then I could play all night on the few quid I've got in my pocket. And if I lost that, I would hardly notice it and perhaps would choose a better gamble for tomorrow. But in buying a house, for me it's more of a once only bet. So I have to choose my time very carefully.

libitina_2

kenshaz wrote:

So why then have hundred of thousands of people managed to own their own homes because they cannot afford it,having a mortgage means that you cannot afford to buy it out-right.I could not afford my mortgage when I took it out ,now it is paid off and worth treble what I paid for it.Please do not use personal comments,that might be appropriate for you,and yours ,but I am afraid it is unacceptable to others

You are probably in the minority in having paid off your IO mortgage. Many people have only had IO mortgages for the last couple of years in order to get themselves on the property ladder. The common misconception that many of these people have is that they own their own home. They don't. They're just paying the rent to the bank instead of a landlord and unlike renting from a landlord, they're still responsible for the maintainance and upkeep of the property they're renting from the bank.

IO mortgages will be the next endowment scandal as very few people have a vehicle in place to pay off the capital.

And all this is not even taking into account falling house prices, rising debts and rising unemployment........No more boom and bust?! Hah!

seven-day-weekend

We had an IO mortgage on our BTL property for about two years when we refinaced because we knew we were going to sell it in the near future and it had plenty of equity in it (also our death-in service cover from our occupational pensions would cover it if we snuffed it before selling). Anyway we sold it and paid off all our debts and now have some money in the bank.
As we are not employed any longer we can not afford to service debt.

I would be very wary about having an IO mortgage for years on my home (the BTL wasn't our home and could be sold at any time). We always had a plain ordinary repayment mortgage on that.

That's my view anyway.