Why do I have to pay off my mortgage?

c7borg

We decided to have an interest only mortgage years ago, the reason being that we have a 1/3 equity (and rising) in the property and are happy that will be enough to downsize when the retirement comes.
So why is it the banks are obsessed with finding out what our repayment vehicle is?
The answer is we don't want to pay it off just live in a nice house whilst we're earning and downsize when times change. It's cheaper than renting and if we went onto repayment we would have to downsize anyway..
I just don't understand why we can't choose, it was fine for us 5 years ago and it still it now!

bargainbetty

Because you are asking them to lend you money and they have their own criteria for lending it. They want to know how it is going to be repaid, and don't want to set themselves up for the long, drawn-out process of repossession and auctions etc if they can just reassure themselves of a flat repayment instead.

You want to borrow their money, you have to answer their questions and show a measure of fiscal responsibility. Seems fair enough to me.

Dave_the_Ginger_Cat

Many lenders are finding that this it what customers say but not what they do. Properties do not always sell in the timeframes, and borrowers do dig their heels in.

It's a perfectly reasonable question to ask how you plan to repay it

antrobus

c7borg wrote: »

....So why is it the banks are obsessed with finding out what our repayment vehicle is?....

Because the FCA have told them to.

http://www.fca.org.uk/news/interest-only-mortgages

"My advice to borrowers is to not bury your head in the sand – take action now. Understand the terms of your mortgage agreement and take control; work out if you can repay the outstanding amount when your mortgage matures. But you must engage with your lender to discuss how you propose to repay the outstanding loan."

_Andy_

Shame on those nasty lenders for being responsible!

kingstreet

_Andy_ wrote: »

Shame on those nasty lenders for being responsible!

... after the event.

Prothet_of_Doom

Your logic is based, totally, on rising house prices, which apart from a few blips in 1990 and 2008 has been a fair assumption, but 95% of the population wouldn't want to live with that logic. Most people want to eventually own the house they live in, and if they are thinking of downsizing to release capital, when they retire, they'd like housing inflation to be taken care of because they paid off thier mortgage.

How much more would it cost to put a repayment method in place ?
Most people would compromise on the size and location of the property in order to be able to eventually pay it off one day.

If banks struggle with your logic, it's because the people who run banks are as normal as the rest of us, and if they don't understand your logic they won't allow it.

I struggle with your logic. But I see that I could have bought a better house if I'd chosen your method. I bought my first house with a 25 year mortgage to pay off at aged 47. When I moved house I kept the end date the same, so that aged 46, I actually owe about £15. Should be mortgage free in Sept.
If I'd gone interest free, I could have bought a house costing 50% more (£25K more in 1998) that would now be worth 50% more but (£100K in 2013) so if I sold that house, I'd be able to buy the house I'm in now with the equity, and pay off the mortgage and have a bit spare.
No. I understand the logic, it even looks a better way, but I couldn't live that way.

ging84

your bank does not want to keep lending you the money for ever, at the end of the term they expect the cash to repay the mortgage to be in your hand, not you saying all my money is tied up in this property you now have to sell which you might not be able to do, or need to secure another mortgage to cover it which you might not get.

If you don't want to be asked about how you are going to repay, you need to look at lifetime interest only mortgages, these do not have a term, but they are also much more expensive, because essentially the bank is acting a bit less like a bank and bit more like a landlord

c7borg

Interesting replies, I will have to go repayment at some point although going from paying £550 a month to over £1000 hasn't worked in my favour.

I'm sure I'll feel so much better my house will be paid off when I'm 60, then I can look back and think of all the things I couldn't afford to do when I was younger I just don't know why anyone would want to be cash rich at retirement how about the hear and now?

No offense I just thinking from a different perspective.

amnblog

Why would a lender want the amount lent to keep reducing and their interest and profit with it.

The regulator is driving this - plain and simple.

There was no movement from the lenders on this until the FSA (now the FCA) starting issuing missives on it.

holly_hobby

And in trying to disprove the assessment that they "weren't fit for purpose", in typical FSA style rather over egged the whole thing !

Whats interesting is they gave no thought as to how a lender should deal with an existing mortgagor whom they may discover has no (or an insufficient) repayment vehicle, but also has not current (or history) of arrears.

Technically speaking if maintaining a repayment vehicle is a contractual element of the T&Cs, and not just an advisory, then they could demand redemption, but if the mortgagor can not obtain an alternative remortgage - would they, under TCF, actually persuade the courts to issue an order of sale, and effectively possibly make them homeless ?

Interesting problem .... as usual FSA acted blindly in sheer panic following the NR b*lls up (where they failed to understand the bus model or monitor effectively), and without any foresight or guidance to lenders on how this would be policed for existing IO mortgagors , largely because they didn't have a clue themselves on how to handle it. But as I say wanted to try and prove they were "on the ball", when it had been clearly determined they simply weren't (hence its dissolution and double headed replacement with FCA and PRA).

I'll be interesting to see how a lender lawfully fairs in attempted enforcement where the mortgagor has no RV (with no contractual requirement), yet can't afford or won't accept a contractual change from IO to C&I (wholly or partially) ... now that will be interesting and one potential powder keg !

IMHO there remains a place for IO lending, but it is rather the historic IO lending on over inflated multiples, house prices and high LTVs that is the ticking timebomb we have meaning peeps sadly can't afford to switch to C&I (even if they weren't being forced to) ..... but is that situation really the mortgagors fault or should it be lain at the door of the lenders and loose/optimistic lending and compliance practices - whom are now being effectively told by FCA to try and somehow backpeddle on the situ.

Moan and rant over ...... ...

Holly x