Is interest-only really a ticking time-bomb?

wotsthat

noh wrote: »

I too have an interest only mortgage,
It is an offeset mortgage. For some time it sat there 100% offset. When the interest rate dropped to 1.5% I withdrew the full balance and put it in savings accounts.
I suspect I'm not alone.

I think the CML have got it right - there are many more people with repayment methods than the FSA think.

I'm on a repayment but pay the Nationwide BMR of 2.5%. I used to make overpayments but can achieve better rates on savings so withdrew them.

Nationwide are releasing a branch based ISA on Saturday - instant access on 4.25%. I want to be in debt for as long as possible and have extended my mortgage to my retirement date so I can maximise the overpayments being diverted to savings. What's the point of saving 2.5% on overpayments when I can make 4.25% on savings?

It's anecdotal but I think when BoE rates rise we'll see large capital repayments being made as it becomes harder to make free money.

RenovationMan

nellyII wrote: »

Mate of mine just handing keys back to northern rock on a house valued recently at £135k that he owed £169k on. He has told them to do their best. He aint and wont be paying any money to them, ever.

Your mate's an idiot. Unlike normal defaults or late payments which stay on a credit record for 6 years, mortgage defaults are recorded for 12 years and remain active for that time. You mate has just made sure that he won't get another mortgage for 12 years, unless he pays back what he owes (plus interest, plus substantial costs).

In 12 years time he could have paid off that £34k negative equity, indeed we could be well into the next cycle and the deficit could have been wiped by HPI.

Your mate has just trashed his finances for what amounts to £2833 a year for the 12 years it's going to impact him. One born every minute.

chucknorris

I'm not sure where I stand on IO mortgages, mine are all IO.

On the one hand for those that know what they are doing and are prepared to back themselves to make more profit/income and outperform a conventional repayment vehicle, then all is well.

All is well when borrowers recognise their limitations and play safe and avoid them. However there is a danger that some over estimate their ability and get into trouble. So should the state act as a nanny and control everyone because of those that don't know what they are doing?

Graham_Devon

Theres a different slant on this on the This Is Money site.

Suggests half of those who took an interest only mortgage between 2005-11 will be mortgage prisoners by next year.

Millions of homeowners will become ‘mortgage prisoners’ next year, ‘trapped’ by loans taken out during the boom years, a report warned yesterday.

Controversial new rules, from the Financial Services Authority, Britain’s financial regulator, which will revolutionise the mortgage market, are expected to come into force next summer.
But the report, published by its own consumer panel, warns the rules will ‘potentially exacerbate’ the current lending drought and ‘increase’ the number of so-called ‘mortgage prisoners

http://www.thisismoney.co.uk/money/mortgageshome/article-2124893/Half-borrowers-took-loans-2005-2011-mortgage-prisoners.html

There are calls for any regulation to be delayed until this will no longer be a problem to protect those who took a mortgage out in a "different environment".

nearlynew

One day the papers report things like "homeowners rejoice at rising prices" then the next day "homeowners face mortgage nightmare"

But what gets me is that they, like many people, are too f*cking stupid to connect the two.

de1amo

İm on İO and have a LTV rate of about 25pc--with the mortgage money i have bought another home abroad and this has helped me develope a successful business. To the stats i look like i have no vehicle to pay the 55k back but its far from the reality!!

Jennifer_Jane

There's another investment vehicle, of course, that may not have been included in these figures. That is the pension lump sum. Also, are people with IO mortgages not repaying 10% per annum? Is that not a standard thing with IO mortgages?

sabretoothtigger

Nope, interest only means zero capital repayment. Some might take it as an option but not many I presume

Pension lump sum is 10% only ? That'd need to be a hefty pension to pay off an entire house

The_J

Pension lump sum is 25%.

Interest only is certainly not a ticking timebomb. People who took out IO 15+ years ago are going to benefit from massive increases in property values, if they have since borrowed against that on an interest only basis tough bloody luck. People who took it out 5+ years ago have plenty of time to pay that mortgage off.

If they can't, tough luck! Treat it like rent and sell it at the end.

Thrugelmir

Jennifer_Jane wrote: »

That is the pension lump sum.

Have you calculated the monthly contribution required to build a £600k pension pot. In order to repay a £150k mortgage?

Besides which savings into pension plans are falling.