Lazy repost - Interest only, the ticking timebomb say Daily Mail

DervProf

Knowing what I know about peoples attitude to money, and the way they handle their finances, it is very likely that plenty of people with IO mortgages are planning to pay back the capital. It is also very likely that many are not.

Not all IO mortgages are "bad", but I am certain that some are. Those that use IO mortgages to their advantage (ie pay off the capital using their preferred methods) will argue that they are a good thing. Those that simply see IO mortgages as a way for some people to cut down on monthly expenditure will argue that they are a bad thing. I think the reality is that IO mortgages can be used or abused, and that lenders should be very, very careful who they give them to.

FTBFun

shortchanged wrote: »

You love to paint this misleading picture about IO mortgages Renoman

It's not misleading, you just don't agree with it.

wotsthat

shortchanged wrote: »

If you pay the same amount via repayments and overpayments to an IO mortgage and a repayment mortgage over the same period, the end result will be pretty much the same.

I've already extended my repayment mortgage to my retirement date and thinking of going IO.

Nationwide are lending me money at 2.5% and I can lend it back to them at 4.25% tax free. I'd be a fool to make any capital repayments. If things change I'll just reverse it.

May as well just watch inflation do it's work on the capital owed.

The end result over time is I'm better off on IO.

Emy1501

wotsthat wrote: »

Renoman fits quite clearly in the 80% i.e. the FSA think he has no repayment plan.

The FSA haven't a clue about people's repayment strategy. That's why these IO threads are so unsatiffactory - we all end up making assumptions based on incomplete data and just guessing how bad it'll be - just like the FSA.

My guess - the 'problem' is massively overstated.

. One piece of research done suggets that 50% of thise question had no real idea how they were going to pay off the mortgage whith close to 30% planning on relying on HPI, 21% hoping to change to a repayment mortgage and 6% who had no idea. This of course excludes those who are relying on saving methods etc which are unlikely to repay the whole mortgage etc.

I therefore suggest that the FSA have more of a clue then me or you and I highly doubt there are loads of whizz kids out there making a better return than a normal repayment method.

I suspect you are guessing what you want to believe.

shortchanged_2

FTBFun wrote: »

It's not misleading, you just don't agree with it.

OK FTBFun you explain to myself and others how Renoman is ACTUALLY £26K better off because he is on an IO mortgage because this is what he attempts to show when he makes the statements he is making.

DervProf

FTBFun wrote: »

It's not misleading, you just don't agree with it.

It is slightly misleading in that it suggests that he is better off by £26k because of IO. Depending on how much and when overpayments are made (not to mention how the lender calculates interest), then an IO mortgage may well beat a repayment mortgage in terms of cost. The fact is that paying, say £50K off a £200K IO mortgage in the first 2 years will always mean that you owe less than if you took out a repayment mortgage and made "normal" payments. It doesn't mean that the overall cost of the mortgage will end up being less.

I suppose it's all down to how you interpret what someone posts.

nearlynew

A very large majority of people who take out IO mortgages do so because it is the only way they can afford the monthly payment.
This allows them to move into (not buy) a house that they could otherwise not afford.

Additionally, those that move from repayment to IO do so not because they are financially savvy but because they are financially f*cked.

100% guaranteed fact.

pinkteapot

RenovationMan wrote: »

I took out my latest IO mortgage in 2010 for £300k. If I had a repayment mortgage it would now stand at £276,290.32 but it actually stands at £250k, which is £26k less on my IO mortgage than on a repayment.

I do agree with you and others here when they say that people who are financially savvy enough can benefit from IO under various circumstances.

However, the point above doesn't make sense to me. If you were on a repayment mortgage your monthly repayments would have been higher and your overpayments less by the same amount. The mortgage balance would however be exactly the same at this moment in time (assuming you had spent exactly the same on the mortgage as you have done).

What IO has given you is flexibility. With the amount you would have been repaying on a repayment mortgage (for the capital), you have the choice of whether to overpay or do something else with the money.

DervProf

nearlynew wrote: »

A very large majority of people who take out IO mortgages do so because it is the only way they can afford the monthly payment.
This allows them to move into (not buy) a house that they could otherwise not afford.

Additionally, those that move from repayment to IO do so not because they are financially savvy but because they are financially f*cked.

100% guaranteed fact.

I think the first statement could be debated for a long time without any real conclusion.

The second is much harder to argue with. I don't think that there is much doubt that most people switching from repayment to IO will be doing so because they are having financial difficulties. No, there is no proof of that, but it doesn't take too much imagination to see it.

Graham_Devon

wotsthat wrote: »

Renoman fits quite clearly in the 80% i.e. the FSA think he has no repayment plan.

What is his plan then?

Think it's quite clear that everyone is missing out a very important word here. "Recognised". That's what the FSA stated 20% had. A recognised repayment plan.