Interest only mortgages

tomstickland

I'm a recent buyer and I opted for repayment mortgage. I don't like the idea of buying a home on IO with no long term plans for clearing the debt. It does strike me as a marketing gimmick to allow people to borrow more than they can really afford. On the other hand, you can regard it as renting from the bank, but with the advantage of not having to deal with a landlord, so I suppose it could be justified on those terms.

RHemmings

PabloNeruda wrote:

Don't be so dramatic. :rotfl:

I'm willing to bet you a trillion pounds that if you bought a house now, you will have comfortably doubled your money in 25 years time.

What's the point of doubling your money in nominal terms if the price of everything else has gone up by three times in the meantime?

But even if I take your claim at face value, you're saying that I'll get a 2.82% compound interest return on my investment. Not exactly very impressive is it? And if I wait a few years and house prices have dipped, then I'll be able to buy a better house, in a better area, have a better life, and still end up with more "wealth" after the 25 years.

seven-day-weekend

RHemmings wrote:

Define "few". Two months if your tenants leave nicely. Six months or more if you have to evict them.

Well yes, I suppose I was thinking of up to six months. But that is the worst case scenario before you can sell it. So I don't think the risks of IO mortgages are as great on BTLs because you can always sell up and release capital, which is not the case with your main home, because you have then to buy back into the same market, or rent.

lynzpower

Jim_B wrote:

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?

1K more than my buying price, bearing in mind that my IO payments are the same, if not less than renting a room in a houseshare

Although in saying that we are selling as now I have a prtner we can afford to rent a place together and thus it will work out as less again IYSWIM

Raggie

dougk wrote:

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!

just giving my view on an open forum.. but my experience shows it will work out different to that ideal.

I have seen the ease of IO borrowing in releasing equity in my home.. for other things.. this releasing of monies in turn reduces my equity and increase my debt..

We (the home owners) have benefited greatly from IO mortgages.. for without them the BTL boom could not have happened at the same levels as we have seen. and without the BTL boom our own homes value would not have increased at the rates we have seen.

The non-home owners have been forced to use IO mortgages as a way onto the property ladder because house prices are too high.. because of the BTL boom.. fueled by IO mortgages

OK so I am simplifying the situation .. but...

Without IO mortgages the endowment scandal that many have faced would not have occurred.. 'cos we would all be using capital/repayment mortgages..

without IO Mortgages the house prices would not have been as high as we have seen and as a result more FTB's would not have needed IO loans to get on the ladder..

without IO mortgages my house would not be worth what it is.. but.. I don't see that as a problem as every other place is worth more too.. so what have I gained..lol..

I truly see the only beneficiary's of IO mortgages as the banks and institutions that issued them.

BobProperty

dougk wrote:

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!

But with the original mortgage amount still outstanding.
My opinion, and it has been shared on here, is that a significant proportion of IO mortgages have no method of repaying the capital. Although it was in the small print at the time it was signed, the buyer was just desperate to "get on the ladder" and never will get round to setting something up. It has already been the subject of articles where it has been predicted to be another "mis-selling" scandal. Ten years from now there will be articles in the financial pages of newspapers with dire warnings and calculations about how much you need to save in 10 short years to have the lump sum in place to pay off your IO mortgage.

kenshaz

seven-day-weekend wrote:

I don't know whether 'everyone' said it - I think it was just me!

I just found from my own experience that if you rent on an assured shorthold tenancy that, even if there is a few month's delay, the tenants WILL be out and then you can sell.


What happenend on 'Tenants from Hell' then?

They trashed the properties and avoided payment,some never intended to pay from the beginning,one tenant terrorised a couple,causing them to crash their car.Programme makers are always looking for extreme circumstances,and it was not a true reflection.They needed to entertain,sometimes this type of reality programme can cause distrust within the market,and prevent some respectable people finding accomodation.

seven-day-weekend

kenshaz wrote:

They trashed the properties and avoided payment,some never intended to pay from the beginning,one tenant terrorised a couple,causing them to crash their car.Programme makers are always looking for extreme circumstances,and it was not a true reflection.They needed to entertain,sometimes this type of reality programme can cause distrust within the market,and prevent some respectable people finding accomodation.

I thought it may be something like that!

But it still doesn't negate my point that within a few months you can sell your BTL, thereby releasing the capital, which the poster who wrote about Tenants from Hell seemed to doubt.

regularsaver1

seven-day-weekend wrote:

I don't know whether 'everyone' said it - I think it was just me!

I just found from my own experience that if you rent on an assured shorthold tenancy that, even if there is a few month's delay, the tenants WILL be out and then you can sell.


What happenend on 'Tenants from Hell' then?

I didn't doubt - you have experience. i was just commenting on the programme that was not easy for them to sell. But it was a progamme called from hell - not like its alwaya the case.

This man could not get tenants out - and could not have court order because the tenant was not classed as serious arrears because of a few payments of housing benefit.
The tenant threated the landlord & trashed house.

Another lady wanted to sell but had same problem.

Court order can only be granted after 2 or so months to evict

seven-day-weekend

regularsaver1 wrote:

T
Court order can only be granted after 2 or so months to evict

Like I said, a few months.