Interest-only mortgage borrowers forced on to more expensive repayment plans

homelessskilledworker

http://www.dailymail.co.uk/money/mortgageshome/article-2212138/Interest-mortgage-borrowers-forced-expensive-repayment-plans.html#comments



Banks have begun to force struggling interest-only mortgage borrowers into expensive home loan repayment plans.

This adds hundreds to monthly bills and could leave millions of people having to sell their home.

A householder switched from a £150,000 interest-only mortgage at 5 per cent to a standard repayment mortgage at the same rate would see monthly payments rise from £625 to £877 over a 25-year deal.

And a 20-year repayment deal would cost even more at £990 a month, figures for Money Mail show.

This is far beyond the means of many families already struggling to make ends meet. And it is an even greater concern to older borrowers, who are usually only offered shorter-term deals.

A 68-year-old pensioner contacted Money Mail after being refused another interest-only mortgage.


The alternative offered — a seven-year repayment plan — would have increased her monthly payments from £79 to well over £900.
David Hollingworth, a mortgage broker at London & Country, says some borrowers without a repayment plan in place are ‘careering towards oblivion’.

Thrugelmir

Interest-only mortgage borrowers forced on to more expensive repayment plans

Dumb journalism.

People should borrow what they can afford to pay back..........

Malky

Thrugelmir wrote: »

Dumb journalism.

People should borrow what they can afford to pay back..........

Exactly. Borrowers should do their sums first and know exactly how much they can comfortably afford before jumping on the house buying wagon. Most of those who are already on interest only have clearly stretched themselves already so only have themselves to blame, especially if they have no repayment vehicle in place.

Graham_Devon

coastline wrote: »

Some will no doubt claim they were sold a product they didn't fully understand....this was hinted at on R4 Moneybox at the weekend.
Will there be a flood of claims..??

I doubt it. The claim would be against any mortgage advise you received.

It's pretty clear in the mortgage documentation, I believe, as to how interest only works.

ukcarper

£79 a month is 5% of £19k the repayments on a £19k mortgage over 7 years are £275 a month have to wonder about the journalist.

zzzLazyDaisy

It is a complete mystery to me how someone can take a 25 yr mortgage, only pay the interest, and be astonished when they have to pay the money back at the end of the term.

Suppose you take a car loan over 5 years and only pay the interest? Would you expect to be given another 5 yr loan at the end of it, and still just carry on paying the interest?

Interest only is fine if it is intended to get the buyer over a short-term financial crisis such as a period of unemployment, but as a long term strategy it is madness unless the borrower has put in place a vehicle for saving up the capital (and look what happened with endowment policies!)

homelessskilledworker

Thrugelmir wrote: »

Dumb journalism.

People should borrow what they can afford to pay back..........

Or what about....



A 68-year-old pensioner contacted Money Mail after being refused another interest-only mortgage.

zzzLazyDaisy

homelessskilledworker wrote: »

Or what about....



A 68-year-old pensioner contacted Money Mail after being refused another interest-only mortgage.

So in fact this pensioner has never had any intention of repaying the loan, and presumably assumed they could carry on paying around £20 a week for the roof over their head until they die? It is just bonkers that this is allowed to happen in the first place. Unfortunately borrowers who cannot pay the loan back on the due date would have to sell up to pay off the debt and find somewhere else to live.

On the other hand, lenders could just stick to repayment loans and then people would only be able to borrow what they can afford to pay back.

ukcarper

zzzLazyDaisy wrote: »

So in fact this pensioner has never had any intention of repaying the loan, and presumably assumed they could carry on paying around £20 a week for the roof over their head until they die? It is just bonkers that this is allowed to happen in the first place. Unfortunately borrowers who cannot pay the loan back on the due date would have to sell up to pay off the debt and find somewhere else to live.

On the other hand, lenders could just stick to repayment loans and then people would only be able to borrow what they can afford to pay back.

I would have thought it was a nice little earner for the bank interest rolling in loan secured against property which is probably worth a lot more than the loan.

HAMISH_MCTAVISH

homelessskilledworker wrote: »

A householder switched from a £150,000 interest-only mortgage at 5 per cent to a standard repayment mortgage at the same rate would see monthly payments rise from £625 to £877 over a 25-year deal.

Oh dear....

They might almost have to pay as much per month for the same property as a renter would.

How very awful for them.....

Thrugelmir

ukcarper wrote: »

I would have thought it was a nice little earner for the bank interest rolling in loan secured against property which is probably worth a lot more than the loan.

The interest earnt is outweighed by the cost of administration involved in dealing with customers like this.