Interest only mortgages

Tanith we have a Retirement Interest Only Mortgage. They are standard products and you repay the capital sum when you downsize, go into care or die, just like equity release, but you pay the interest rather than roll it up.

We took it out last year to help finance an extension we were building.

From what the OP says. I think these people probably have ordinary mortgages. In which case they should have planned ahead. They would always have known that the capital had to be paid back and when. It is too easy to blame the banks/building society, but basic things like this do require individuals to act sensibly and take responsibility for their actions They will have had these mortgages for some time, so have had plenty of time to think about what to do.

The way out for many may be Retirment Interest Only Mortgages or Equity Release.

We took out a large interest only mortgage when we returned from abroad in our 50s and were buying in London. We suspected that down the line property prices in the area would rise astronomically, and also we envisaged selling our properties abroad which usually takes a bit of time. Luckily it all worked out and we then upsized, took out another interest free mortgage, sold 5 years later with another profit and then paid everything off with no penalties. It is possible if you play the Monopoly board a bit and are risk averse.

MissAdventure

I suspect people were encouraged by hard sell from their banks and building societies at the time.

This^
We had an endowment mortgage from 1990.....when we moved home in 97 it became obvious it wouldn't cover the final payment....we went to the ombudsman who agreed we had been misold..... we then took out a repayment mortgage for new house less the 10k we had been awarded by ombudsman.....this put us back on track ....it was very normal back then though to have that type of mortgage....we were young and green

You need to think seriously before making such a decision. If you are 65 years old, there are still chances of getting a mortgage. But if you are already 70 or more, it is better to leave this idea. Banks will not work with borrowers of this age as part of a mortgage. A loan, a credit card — will be given, a mortgage - no. When choosing a bank, look at the age requirements. The specified upper limit is at the time of cancellation according to the schedule. Try using Mortgage Broker Bath to draw up the right contract, if you still decide.

Thanks Rosie1959 I do need to see a mortgage broker rather than trying to guess which is the best option. Thanks

PinkCosmos only another suggestion see a Broker ASAP and see about getting a fixed rate as then you will know how much you will be paying, rates are going up so fixing now might be a good idea. See an all of the market broker they will have access to the biggest range of products.

We had a low cost endowment mortgage and it turned out to be the best investment we ever made. We paid our mortgage off early so didn't need to use the endowment and it has improved our income in retirement.

We had a part repayment part interest only mortgage from a building society, the interest only is £20k.

Halfway through the mortgage term, my husband started making overpayments into the flexi account. At the end of the mortgage term, we had a very small shortfall which we cleared from our savings.

As I recalled, the building society never asked us to take out an endowment policy for the interest only mortgage, I told the mortgage broker I had enough in my overseas pension to clear the interest only portion and he accepted that.

I did took an endowment policy with my bank but I cancelled it six months afterwards and threw the paper work away, which is not clever of me.

We are in our late 70s and took out an interest only mortgage last year to pay for an extension. The loan is not large in absolute terms, in loan to house value nor loan to income. We could have borrowed much more had we wanted to, but we didn't. It will be repaid when we sell the house and down-size or when we die.

It made absolute sense to build the extension, which adds considerably to the value and saleability of the house, as well as increasing our enjoyment of living in it and when we move on, repaying the capital from the house proceedings will not in anyway limit our choices when we downsize.

JenniferEccles There are times when interest only mortgages, thought through and considered, make absolute sense.

We had an interest rate only mortgage attached to an endowment policy. It was taken out before endowment policies became inadviseable and it paid out the full amount we required plus a small surplus.

All these different ways of borrowing can be perfect solutions or total disasters depending on the when and how people use them, plus of course those rare black swan events that can upset things, no matter how careful you are.

Callistemon21 - thanks for the link. unfortunately it won't work when I click on it or paste it.

Perhaps you can paste it into your browser.

PinkCosmos
I'm not sure if this will work or how up-to-date it is.

11014505-ewsni-endowment-mortgage-complaints-pdf-5.pdf

tanith

Thanks, i guess people have their reasons but it seems unfair to blame the banks for what is at best poor judgement on the part of the mortgagee.

We tried to get a Building Society repayment mortgage in the mid-1980s but they were not offered at the time.
The Building Societies were linked to the insurance companies and endowment mortgages were pushed heavily.

It was a miss-selling scandal..

maddyone

We had one too. At one point it was almost impossible to get a normal repayment mortgage. We had an endowment policy to pay off the cost when the mortgage finished, but like rosie we swapped it for a normal repayment policy quite soon. We kept the endowment policy and it matured as we approached retirement.

We had two as well, as advised at the time. They were popular in the 1980s when interest rates were high and good returns were expected on endowment policies.

However, our main one failed to reach the amount required. We luckily had some redundancy money (a double-edged sword) which we used to pay off the mortgage.
We also had a small one for an extension and the insurance company did make up the payout to the amount it should have reached.

I would never have taken out another one.

Rosie1959 - thank you for your advice. I do really need to go to see a mortgage broker.

My thoughts were to save up as much as I could to go towards paying as much as I could off the mortgage and then re-mortgage. I thought it would work out less expensive to do this as I would not be borrowing as much in two years. But then again, I am paying more interest now than if I had made additional payments.

We owe £80k but the house is worth around £280k. We had a repayment mortgage originally but converted it to interest only when we both lost our jobs 15 years ago. We are both employed now and should have converted it back really.

I thought if I could save at least half of the outstanding amount (before the mortgage is due) I would only need to borrow £40k so the payment would be lower.

I think it might be sensible to pay some off now. The money is in an ISA but is only making 1% interest.

I had a part and part mortgage, some on interest only and the rest of repayment. So as the repayment part got close to being paid off I moved some over from the interest only portion. Seemed sensible and worked for me. Now mortgage free and hoping to stay that way, but who knows what the future will bring, though I wouldn't go interest only now.

I suspect people were encouraged by hard sell from their banks and building societies at the time.

Thanks for the link Madeupname. Very useful info on the retirement interest only mortgages. I wasn't aware of these.

PinkCosmos

We have an interest only mortgage which is due in a couple of years. I am 64 my DH is 62

I have been saving to pay off the amount but will be about £20k short. At that time I am hoping that I can take out a regular repayment mortgage or a loan over about ten years.

I have considered paying off what I have saved as a lump sum as the interest rates have just gone up. I seem to recall that you can only pay off 10% in a lump sum per year. Not sure if this is still correct.

I haven't looked into this yet but I think I should as I may be hiding my head in the sand.

Any advice gladly received.

We changed our interest only Mortgage a few years ago to a repayment mortgage over ten years.
We could get a remortgage because we had the income to cover the new repayment mortgage. We are both working and my husband has his own company so our income easily covered the Mortgage. My husband is a Mortgage Broker
There is a minimum amount for a remortgage I would suggest talking to a Mortgage Broker regarding your options.

We have an interest only mortgage which is due in a couple of years. I am 64 my DH is 62

I have been saving to pay off the amount but will be about £20k short. At that time I am hoping that I can take out a regular repayment mortgage or a loan over about ten years.

I have considered paying off what I have saved as a lump sum as the interest rates have just gone up. I seem to recall that you can only pay off 10% in a lump sum per year. Not sure if this is still correct.

I haven't looked into this yet but I think I should as I may be hiding my head in the sand.

Any advice gladly received.

I meant to add this link to further explain the above:

hoa.org.uk/advice/guides-for-homeowners/i-am-managing-2/retirement-interest-only-mortgages/

An 'interest-only' mortgage in retirement is often a cheaper alternative to a 'lifetime morgage', which is a type of Equity Release.

With an interest-only mortgage, you pay back just the interest in your lifetime. The loan is repaid from your estate after death.

With a Lifetime Mortgage, you often have the option to make payments (to reduce the amount that will be repaid from your estate) but you can choose to make no payments, in which case the interest is rolled up - compounded - so the debt gathers interest on the interest, and the (often surprisingly large) debt is repaid from your estate after death.

So if you need the money, and can afford to pay from your income just the interest on an 'interest-only' mortgage, it will not take as much out of your estate as the Lifetime mortgage - Equity Release - option.

I’m so grateful that my ex husband and I were very cautious when we moved house in 1987 and our solicitor suggested we get an endowment mortgage. We had doubts and decided to go for a straightforward repayment mortgage, we were definitely in the minority among our friends but it turned out to be the right decision for us - allowed us to borrow more to build an extension and made it easier for me to take over the remaining mortgage when we divorced in 2004.

My sister and a friend who did take out endowment mortgages had problems when they came to move house and were also faced with inadequate funds at the end of the mortgage term.

The best financial decision I made was when I decided to get an off set mortgage after my divorce, whereby any savings I had with the bank were offset against my loan reducing the interest rate. By paying the same monthly amount and not getting interest on my savings, I was able to pay off my mortgage in 8 years instead of the 15 term. This meant that when my children's maintenance ceased, my mortgage was paid off and I was able to use my salary to start serious savings for my retirement.

We had an endowment mortgage at one point and like many others realised that it wasn’t going to cover the capital. We moved to a traditional mortgage and claimed for mis-selling which paid up enough to cover us.

This was mid-90’s, when house prices were rising stratospherically and we were all told we couldn’t lose. People were being offered six or seven times their salary on IO mortgages - mad!

It’s hard to think that we didn’t have the Internet then and the likes of Martin Lewis and so on to give us independent information. You really didn’t have much to go by except what a financial advisor told you and they were all saying the same thing, so why would you doubt them?

I’m sorry that people are now coming a cropper, that’s very sad.

I just can’t understand this at all.
These people must realise that the mortgage will have to be paid off eventually.
If they haven’t got the funds to do that, whatever do they think will happen?
I think it’s a case of burying their heads in the sand.