MSE News: Interest-only mortgages could be 'thing of the past'

RenovationMan

gingeralan wrote: »

I am sure you are aware that this idea wages always go up is not reallythe case, we have had 4 or 5 years where incomes have remained steady or even fallen, many have lost their jobs. A 25 year gamble that your wage inflation will allow you to clear your debt when you might not even have a job, you may die and leave your loved one with a large financial headache, YOU might also lose your job or become unable to work due to illness.

Insurances can cover illnesses and death. Both IO and Repayment mortgage holders will be at risk from these for most of the mortgage's 25 year tenure. With a repayment mortgage most of the interest payment is loaded at the front so very little capital is paid off even in the first 10 years.

gingeralan wrote: »

I fail to understand why people think it is sensible to gamble with their homes, its your home, its security, it is allows you to get all the things you want in life (shelter, warmth etc.) Why risk your home? I do not think it is sensible or desirable to place ones family in such a position.

If you hit a financial 'bump in the road', an interest only mortgage will be cheaper to maintain than a repayment one and so your emergency money will go so much further. Many people on the debt boards get into difficulties due to job loss and try to revert to IO mortgages to give them breathing space, often their banks prevent them causing a financial difficulty to become a financial disaster. I'd argue that, in this instance, a repayment mortgage is riskier than IO.

shortchanged_2

RenovationMan wrote: »

If you hit a financial 'bump in the road', an interest only mortgage will be cheaper to mintain than a repayment one and so your emergency money will go so much further. Many people on the debt boards get into difficulties due to job loss and try to revert to IO mortgages to give them breathing space, often their banks prevent them causing a financial difficulty to become a financial disaster. I'd argue that, in this instance, a repayment mortgage is riskier than IO.

Does this include the quite large number of people with IO mortgages who have no form of repayment plan in place? I wonder where their breathing space will come from.

RenovationMan

shortchanged wrote: »

Does this include the quite large number of people with IO mortgages who have no form of repayment plan in place? I wonder where their breathing space will come from.

Have you even read what we are discussing?

shortchanged_2

RenovationMan wrote: »

Have you even read what we are discussing?

Yes and I have answered a statement you made regarding people with IO mortgages are more likely to be able to have breathing space during tough times. I happen to disagree that this is not always the case.

Care to tell me what I am missing?

RenovationMan

shortchanged wrote: »

Yes and I have answered a statement you made regarding people with IO mortgages are more likely to be able to have breathing space during tough times. I happen to disagree that this is not always the case.

Care to tell me what I am missing?

You forgot to say why you felt it was not always the case that IO mortgages could give you more [financial] breathing space breathing space than repayment mortgages during tough times.

shortchanged_2

RenovationMan wrote: »

You forgot to say why you felt it was not always the case that IO mortgages could give you more [financial] breathing space breathing space than repayment mortgages during tough times.

Because if you are struggling with your finances and you are already on an IO mortgage then there is little or no leeway. If you are on a repayment there may be options open to you to at least come to some agreement with your lender to reduce payments temporarily.

mic200202

Typical lender over reaction to what are only proposed rule changes by the FSA.The did the same when the FSA commented on Self Cert Mortgages in an earlier discussion paper.Lenders removed these right away.

Some lenders want to be seen to react to the FSA like this,and almost want to be seen to exceed what is being suggested as if they are the actual rules.

I have noticed a major downside to this type of lender reaction on ionterest only is that,for those customers who may see difficulties ahead,the lender uses the 'FSA rules' as an excuse for not permitting them to move to interest only,or makes it very difficult to do so.Even if a customer is being responsible by contacting a lender BEFORE they get into difficulties,its as though lenders want to squeeze the last ounce from them and let them go into missed payment or arrears before doing anything. I have seen many examples within these very pages.

jaysb

shortchanged wrote: »

Because if you are struggling with your finances and you are already on an IO mortgage then there is little or no leeway. If you are on a repayment there may be options open to you to at least come to some agreement with your lender to reduce payments temporarily.

depending on your lender, if you've made overpayments on either an IO or repayment then you may be able to reduce payments on a temp basis

RenovationMan

shortchanged wrote: »

Because if you are struggling with your finances and you are already on an IO mortgage then there is little or no leeway. If you are on a repayment there may be options open to you to at least come to some agreement with your lender to reduce payments temporarily.

If you are on a repayment what options are open to you? How would the lender reduce payments temporarily?

Go on.. say it...

shortchanged_2

RenovationMan wrote: »

If you are on a repayment what options are open to you? How would the lender reduce payments temporarily?

Go on.. say it...

By going IO. What do you think I am going to say.