Person of Interest Only

CLAPTON

C_Mababejive wrote: »

OTOH a full term interest only deal would seem to be a good deal for the banks.

They get the interest rate on their money every month

They benefit from any house price inflation

At the end of the term the resident either pays up or gets out

The bank markets the property in a controlled manner,hopefully to realise a profit.

Of course where it will all go wrong is when the wholesale repossessions kick in as these products mature.

No doubt HM Government will step in and steal the money from savers/pension funds/taxes to limit the loss and preserve some element of the status quo.

There seems to be no specific benefit to the banks to lend on a interest only basis as they can readily lend the money anyway.

I don't see how they benefit from house price inflation... the owner does.

If it all goes wrong and they repossess they are legally obliged to give any 'profit' to the owner.

Eellogofusciouhipoppokunu

chewmylegoff wrote: »

Good to see that your famous interest rate gamble continues to pay off - I was getting worried as we hasn't heard about it for a while.

Thanks chewy, yes, it's going well. As I predicted, rates are still at record lows and those of us who were prepared to take a risk are reaping the benefits. In our case we have reduced the mortgage down to a level that we are more comfortable with (4x my salary) and we are throwing all our disposable income at the renovations.

We're just about to plaster one of the bedrooms with insulating hemp lime plaster after installing a huge amount of (breathable) insulation. We have 100mm of acoustic (and thermal) rockwool between the floor and ceiling joists, 30mm very dense acoustic insulation in the walls and 100mm of insulation built into the external walls.

The effect is amazing, we have no heating in there at all (I have removed the radiator in order to reposition under the window) and the room is a constant and comfortable temperature even during the recent cold snap. The sound quality is amazing as well, a muted and pleasant environment.

With gas and electricity prices going through the roof, we're using our reduced mortgage payments to insulate our house to better than current building regs levels. Once we have finished we will be able to do without gas heating for most of the year, which will keep our gas costs down. We have also installed LED lights everywhere and A++ white goods, and so we're already making savings on our electricity.

The money we'll save on utility bills and the extra value we gain on the house due to the renovations will be far in advance of the savings we could have made on the mortgage costs by having a repayment mortgage. Plus we'll be very comfortable in our lovely home.

It's all working out terribly well. I'm sure everyone on here is as delighted as we are with how well it's all going.

shortchanged_2

Eellogofusciouhipoppokunu wrote: »

Thanks chewy, yes, it's going well. As I predicted, rates are still at record lows and those of us who were prepared to take a risk are reaping the benefits. In our case we have reduced the mortgage down to a level that we are more comfortable with (4x my salary) and we are throwing all our disposable income at the renovations.

We're just about to plaster one of the bedrooms with insulating hemp lime plaster after installing a huge amount of (breathable) insulation. We have 100mm of acoustic (and thermal) rockwool between the floor and ceiling joists, 30mm very dense acoustic insulation in the walls and 100mm of insulation built into the external walls.

The effect is amazing, we have no heating in there at all (I have removed the radiator in order to reposition under the window) and the room is a constant and comfortable temperature even during the recent cold snap. The sound quality is amazing as well, a muted and pleasant environment.

With gas and electricity prices going through the roof, we're using our reduced mortgage payments to insulate our house to better than current building regs levels. Once we have finished we will be able to do without gas heating for most of the year, which will keep our gas costs down. We have also installed LED lights everywhere and A++ white goods, and so we're already making savings on our electricity.

The money we'll save on utility bills and the extra value we gain on the house due to the renovations will be far in advance of the savings we could have made on the mortgage costs by having a repayment mortgage. Plus we'll be very comfortable in our lovely home.

It's all working out terribly well. I'm sure everyone on here is as delighted as we are with how well it's all going.

Well done you. :T

Eellogofusciouhipoppokunu

shortchanged wrote: »

Well done you. :T

Thanks! What I've always liked about you is how good a feeling you get when things go well for other people.

Cheers, mate.

shortchanged_2

Eellogofusciouhipoppokunu wrote: »

Thanks! What I've always liked about you is how good a feeling you get when things go well for other people.

Cheers, mate.

No problemo.

grizzly1911

wotsthat wrote: »

Assuming that they bought 25 years previous logic dictates that the mortgage holders are sat on a chunk of equity.

Historically mortgages roll over quicker than that, 7 years or so.

Probably out of date now but I am sure someone in the know will correct me.

wotsthat

grizzly1911 wrote: »

Historically mortgages roll over quicker than that, 7 years or so.

Probably out of date now but I am sure someone in the know will correct me.

That sounds about right but the people we are worried about are those without a repayment vehicle and only bought IO because they couldn't afford the repayment option. I'd expect them to rolling over their mortgages less quickly.

Time will tell but it would be nice to know how IO mortgages due for repayment this year were dealt with. I've not heard anything to suggest there's been any sort of problem.

C_Mababejive

CLAPTON wrote: »

There seems to be no specific benefit to the banks to lend on a interest only basis as they can readily lend the money anyway.

I don't see how they benefit from house price inflation... the owner does.

If it all goes wrong and they repossess they are legally obliged to give any 'profit' to the owner.

Ah yes..not sure if i forgot that bit or wasnt aware of it...oh well..its over to the savers and pension funds to keep the good ship sailing on then !

Graham_Devon

wotsthat wrote: »

Time will tell but it would be nice to know how IO mortgages due for repayment this year were dealt with. I've not heard anything to suggest there's been any sort of problem.

It's unlikely there will be huge problems with the loans due this year. Afterall, you are talking about people who bought in 1987.

I did put up an article the other day though showing people with real problems paying off their IO loans today. You were active on the thread, so you have seen problems.

Eellogofusciouhipoppokunu

grizzly1911 wrote: »

Historically mortgages roll over quicker than that, 7 years or so.

Probably out of date now but I am sure someone in the know will correct me.

I'd imagine it was a shorter period these days because people seem to move to a new mortgage product every couple of years. In the old days people arranged their mortgage and stayed with it until they moved house (on average every 5 to 7 years) but people are using comparison sites to get the best mortgage product (as they do with their utility suppliers) and move far more frequently.

Whether this is a good thing or not is debatable. With arrangement fees in the thousands, it is often much cheaper to remain on the same mortgage than to chase rates, especially for those with smaller mortgages.