Interest Only Mortgage Advice

Thrugelmir

Scott_1701 said:

MWT said:

Scott_1701 said:

- We have considered equity-release, but do not feel this is a viable option given the costs involved.

I would suggest she speaks to 'Step Change' they are able to help her work through her options including Equity Release, RIO etc.

They are a charity and make no charge for their advice so that should put your cost concerns at ease.

Thanks for this, didn't know about their advice, i'll certainly have a look into them.

Thrugelmir Thanks for the advice, you certainly make a good point, I'm just not sure settling the mortgage is an avenue she'll want to go down, but certainly one we'll explore, she is quite stressed about having no further emergency savings to fall back on if she settles the mortgage, but perhaps this is a harsh reality she might have to face into.

My late mother was the same.  Do you hold an LPA?  

dunstonh

- I believe she was given bad financial advice years ago, as i would never agree with her going for an interest-only mortgage in the first place, but lets not cry over spilt milk.

Statistically, it is unlikely that she was given bad advice.   Your gran comes from the generation that took suffered high inflation.  Debts were eroded quickly by inflation.     Houses at the start of the mortgage cost the same as an annual salary at the end (in some cases as little as a couple of months salary).       So, using interest only was a way to let inflation erode the debt and it would be easier to afford in 25 years than it would paying a repayment mortgage at the start.

The problem is that the UK moved from a frequent boom/bust basis with high inflation to very low inflation.   

Also, if we are talking 25 years ago then its unlikely she got advice.    Back then, most mortgages were non-advised. People asked for what they wanted and the lenders assessed it on the ability to repay.  That was effectively it.

- We have considered equity-release, but do not feel this is a viable option given the costs involved.

What costs?   Every option has some cost but Equity Release is not necessarily expensive.  

Do you think a Retirement Interest Only mortgage is a viable option? She would be happy to continue paying the interest, assuming it wouldn't jump up massively. 

That is a form of equity release.

Scott_1701

dunstonh said:

- I believe she was given bad financial advice years ago, as i would never agree with her going for an interest-only mortgage in the first place, but lets not cry over spilt milk.

Statistically, it is unlikely that she was given bad advice...Also, if we are talking 25 years ago then its unlikely she got advice.    Back then, most mortgages were non-advised. People asked for what they wanted and the lenders assessed it on the ability to repay.  That was effectively it.

She got the advice 10 years ago, I had never thought about inflation almost eating into people's debt before over time, very good point. And thanks for your points on the RIO mortgage, hadn't quite realised it was a hybrid of equity release too.

dimbo61 said:

Solution pay off the IO mortgage asap.
She is also paying more in interest on the mortgage than she will be getting from her savings.
Owning your own home in retirement is a wonderful place to live.
If she needs to increase her income she can either sell and rent a retirement property or downsize or do equity release.

I spoke with my gran today and have reviewed her accounts, and she actually has a bit more saved up than I first realised which is fantastic. She has c.£30k in savings and £20k in premium bonds + £20k in current account, I think your advice Dimbo is the best route. She's paying £1k+ a year on an interest only mortgage, which by my reckoning is way more than she will get in income on her £30k's savings. So think the best route is to pay it off sooner rather than later. I still think if she's unsure i'll point her to a broker and a financial adviser too for her peace of mind given the advice you all have given to do so.

Thanks everyone for all your helpful advice and replies, really appreciate it. 

MWT

TrickyDicky101 said:

I think the ultimate source of revenue for SCFS is the lenders (having just reviewed the accounts and those of Step Change itself).  This isn't necessarily bad but there is the possibility - assuming this is the case - that this could influence lender choice [put forward by SCFS].  If considering Equity Release they look like a good option though (as there isn't a profit motive) so I don't want to derail this thread and will cease commenting further.

Just to add to this for clarity, yes, they receive payments from the lenders but so do pretty much all the other sources of advice regardless of them charging fees for their advice unlike SCFS, as even an IFA is permitted to be paid commission for advice related to mortgages, equity release, general insurance (like travel or home insurance) or protection insurance, such as term life insurance.

All of this is clearly disclosed if anyone engages with SCFS.

MWT

Scott_1701 said:

I spoke with my gran today and have reviewed her accounts, and she actually has a bit more saved up than I first realised which is fantastic. She has c.£30k in savings and £20k in premium bonds + £20k in current account, I think your advice Dimbo is the best route. She's paying £1k+ a year on an interest only mortgage, which by my reckoning is way more than she will get in income on her £30k's savings. So think the best route is to pay it off sooner rather than later. I still think if she's unsure i'll point her to a broker and a financial adviser too for her peace of mind given the advice you all have given to do so.

Thanks everyone for all your helpful advice and replies, really appreciate it. 

That's wonderful news, sounds like she is well placed to deal with the mortgage and not be worried about her savings any more.