Interest only mortgages

Jim_B_3

lynzpower wrote:

Hyde says, when I sell my flat, if I make even 1k on it, then the IO mortgage was a good vehicle for that gain.

Is that 1k more than your buying price, or 1k more than your buying price plus the thousands and thousands of pounds of interest payments?

hornetgirl

I would not dream of having an IO mortgage on my own home. The endowment mis-selling business indicates that even when people had an investment vehicle in place to pay off the loan, they weren't able to do so. Now people take out IO mortgages with no investment vehicle, because it's the only way they can afford a mortgage
Some argue that they will sell up and downsize, but that assumes a substantial rise in house prices, not to mention a supply of suitable smaller, cheaper housing which presumably FTBs and BTL investors will still be chasing.
If you aren't able to sell up, I can't see any difference between an IO mortgage and renting - the money just goes to someone different.

Different story with my BTLs though - the mortgages on those are both IO. One will be paid off when we sell this house and move into it (and yes, we do have enough equity - it would pay the BTL mortgage several times over, so prices would have to crash mightily in the next couple of years.) No idea yet what we'll do with the other BTL, but as it's only just been remortgaged (IO), we've got 20 years or so to worry about that.

Horses for courses really I suppose would be my opinion.

realwildone

I see IO mortgages as mortgages for mad people.

People who take these out will be the first to be hit WHEN a correction comes.

The only bigger worry than this is if you bought a flat with a IO mortgage.

kenshaz

RHemmings wrote:

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.

Forget having a mortgage ,rent

kenshaz

realwildone wrote:

I see IO mortgages as mortgages for mad people.

People who take these out will be the first to be hit WHEN a correction comes.

The only bigger worry than this is if you bought a flat with a IO mortgage.

Forget a mortgage rent

seven-day-weekend

realwildone wrote:

The only bigger worry than this is if you bought a flat with a IO mortgage.

Our BTL was a flat with an IO mortgage for the last two years after we re-financed. But we didn't have the IO mortgage until we knew we were going to sell the placee (and being a BTL we could sell it at any time).

We sold it at below the valuation (for a quick sale) at £87950 last year. The valuations had come in at £89950, £93995 and £105000:eek: We felt the top valuation was totally unrealistic and so we put it on for the £89950 and accepted less. .

Just looked at the average selling price for those flats a year later and it is....£90,950. (So we didn't do too badly after all! ) .It sold the same day - thereby illustrating that if you put your property at a realistic price it will sell.

Anyway, that was slightly OT... what I meant to ask was, what difference does it make being a flat with a IO mortgage, as in the quote?

regularsaver1

why does everyone say with with a BTL it can be sold at anytime ? - it doesn't seem that way with "Tenants from Hell" on TV tonight that I watched.

I think that IO does help people out but

Many people do have intentions to change to repayment later, but many do not make that change as they are used to that disposable income. Also people could buy when couple, but then in few years later start a family - and therefore their outgowing have increased, and are not able to change to repayment.

But of course this is not always the case

PabloNeruda

Raggie wrote:

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....

Smoke a big fat doobie and chill, man. Life's too short.

I'm paying a monthly mortgage that is the same as renting it for one week. I'n 15 years time, when I'm old and dribbling, I'll move into somewhere smaller. If I make it. :beer:

dougk_2

Raggie wrote:

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....

TBH in say 25 years time (when your 61) £91k is going to be something in comparison to £10k now so really would you be that worried ? I certainly wouldn't. I would also expect my salary to be somewhere close to that figure after various promotions, job changes and inflation!

dougk_2

realwildone wrote:

I see IO mortgages as mortgages for mad people.

People who take these out will be the first to be hit WHEN a correction comes.

The only bigger worry than this is if you bought a flat with a IO mortgage.

Consider an IO mortgage the same as renting - except if you are in it for the long term you are nearly almost guarnteed to have an asset worth more than you paid for it!