My Masterplan......tell me the flaws!

pamaris

My view is that if you are going to pay for something for 25 years then you might as well fully own it in the end. I just do not think IO mortgages are suitable for most (any?) circumstances.

Generali

Oh I see! OP means that their plan is to sell up and buy a smaller place in xx years time and that parents should do the same.

pamaris

pulliptears wrote: »

The plan was when I do inherit, whenever that may be, we use that money to pay off some of the mortgage.

The trouble with this is that (unless they are in Scotland) if God forbid they must be placed in a home, their house will have to be sold and the proceeds must be used to pay for their care. There is no use counting on an inheritance.

pulliptears

pamaris wrote: »

The trouble with this is that (unless they are in Scotland) if God forbid they must be placed in a home, their house will have to be sold and the proceeds must be used to pay for their care. There is no use counting on an inheritance.

OH and I have had this conversation, and as far as physically possible we would never let that happen. Thats the point where we would move them in with us and provide care. Obviously that isn't always possible and it is another factor for consideration.

but Ive never been fond of IO mortgages for the reason stated, Id rather pay it off and I do feel uneasy with it, hence asking here for the pitfalls before I commit.

**edited to add** Mum tells me the care issue is the reason they had the will set up so I inherit 50% if one of them passes, its there to assure should the other need care there will still be 50% of the house that cant be touched.

pulliptears

Generali wrote: »

Oh I see! OP means that their plan is to sell up and buy a smaller place in xx years time and that parents should do the same.

Yes. There are some great little Bungalows near me, dad struggles with stairs so it would be ideal. they could sell their house, buy the bungalow and have £30k to live off. I would love to see them do that but they wont. They have lived in their home for 40 years.

pamaris

pulliptears wrote: »

OH and I have had this conversation, and as far as physically possible we would never let that happen. Thats the point where we would move them in with us and provide care. Obviously that isn't always possible and it is another factor for consideration.

but Ive never been fond of IO mortgages for the reason stated, Id rather pay it off and I do feel uneasy with it, hence asking here for the pitfalls before I commit.

**edited to add** Mum tells me the care issue is the reason they had the will set up so I inherit 50% if one of them passes, its there to assure should the other need care there will still be 50% of the house that cant be touched.

OK well I didn't know that you could do that with the will... anyway I am just coming from the point of view of having cared for my MIL for the past 9 months after a stroke. She is OK now but you never know what life will throw at you, and you're right it isn't always possible to care for someone at home.

Was going to comment further on the IO mortgage thing but dinner's ready and I have to run!

clutton_2

maybe fit a stair lift for them ......

i was in exactly the same position as you, and the truth is, you have no way of knowing when your folks will die, nor how much you will inherit - make your own family plans based on a "no inheritance" scenario, and then when it happens - the inheritance can fund a family treat/house deposit/trip to antarctic - whatever ..... for you all to have fun

dont be put off by other posters, of course you have to think ahead .....

Generali

On the IO thing, what happens if the house isn't worth enough to pay off the mortgage? Unless you take out a repayment vehicle (e.g. ISA) then it is a risk.

Most people say it'll never happen but in about 5-10 years, there'll be a lot of houses wanting to be sold as baby boomers retire and want to cash in on their property wealth.

I might be right, I might be wrong. It's a risk, nothing more.

<joke>Perhaps you could ask your parents for your inheritance early</joke>.

moneysavinmonkey

hello... well you asked

Flaws in the plan:

IO mortgage means you end up paying more in the long-run as he balance stays the same.

IO mortgages mean you are more sensitive to Interest Rate Rises.

You will not have any equity in the house other than that which you gain through HPI

There may not be any HPI or may even go down for a number of years

The equity you have in your house may not be enough to buy a smaller property when you come to downsize.

You may not be able to downsize due to Children still being around (or having to care for your parents at home).

If your parents have no other inheritence to give you other than the value of their home it would be very unwise to rely on this in your plan:

It is fairly common nowadays for houses to be sold to pay for care/nursing fees as is the nature of getting old nowadays.

Even if you are able to have your parents live with you (and this could very well mean either you or your partner had to give up work), they may still need professional medical care at home. If either of your parents need this kind of care for even just a few years it will very quickly wipe out any savings or assets they have.

There is a big risk here. You can't rely on inheriting anything from your parent and if you go the IO route and don't get any inheritance in 20 years time you will be reaching retirement age with very little working life left to pay off a large mortgage.. bit of a gamble.

pulliptears

moneysavingmonkey thats exactly what I was looking for. Simple to understand for me

We can fund a repayment mortgage for £170k anyway, but OH just wanted to push to £200k with an IO to open up more properties for us. reading that I dont think its worth the risk for an extra £40k, it is a gamble, and Im not sure I want to spend the next 25 years worrying about it.