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Interest only mortgages

(36 Posts)
tanith Sat 21-May-22 07:50:39

Just read an article about pensioners on interest only mortgages who’s fixed rate are ending can’t remortgage as they are not accepted by almost all companies because of age will likely have to sell up and lose their homes as they don’t have enough equity to pay what’s owed.
Can anyone explain why anybody would take out an interest only mortgage at an advanced age with no means to pay at the end of the term I just don’t understand. Perhaps there is a good reason does anyone know?

Oopsadaisy1 Sat 21-May-22 07:57:30

Maybe they just kept remortgaging (for various reasons) and then too late realised that the last Mortgage they took out wasn’t going to be covered by the huge house prices rises that we have had in the past, which, unless you live in London or on the South Coast haven’t happened. The plan is usually to sell and move into a smaller and cheaper property in your retirement.
It’s easy to get swept into an interest only mortgage thinking that you can save up some money and then due to house prices rising so much you will be able to cover the whole amount at a later date.
We did it many many years ago but I think we had to take out an Insurance policy to cover the whole amount when the mortgage was due to be paid in full.
Nowadays I don’t think anyone would be advised to take out an Interest only Mortgage (at any age).

Grandmabatty Sat 21-May-22 08:09:55

They were pushed heavily in the 90s. We had an interest only mortgage at one point. But we did have an endowment policy to pay the rest off.

rosie1959 Sat 21-May-22 08:19:43

You wouldn't take out an interest only mortgage at an advanced age the clue is in the title even if you could get one now they are tightly regulated.
We had one in our younger years as they were cheaper and suited us at the time my husband rebroked it a few years ago to pay off the balance in 10 years on a normal repayment mortgage.
They are mainly used now for buy to let properties

maddyone Sat 21-May-22 08:32:42

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.

Happygirl79 Sat 21-May-22 08:49:44

I suppose if the property increases in value then they would gain when it was sold but then what?
They would never pay a penny of the capital amount so can't reduce the debt by paying interest only on the loan. So really it would be just like renting the property but cheaper if interest rates stay low?

Zonne Sat 21-May-22 08:59:20

In the 80s and 90s, many people were mis-sold endowment policies linked to interest only mortgages. I was told mine would pay off my mortgage and give me an additional
lump sum, which, it later transpired, was virtually impossible. I received some compensation, as did others. I’d already switched to a repayment mortgage by then.

Some people may have continued to believe their endowment would pay off the mortgage when it matured; some may have never been in a financial position to switch to a repayment mortgage.

tanith Sat 21-May-22 09:03:07

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.

Pittcity Sat 21-May-22 09:04:19

We sold our endowment policy when we switched to a repayment mortgage as it was calculated that we'd get less back than we'd paid in at maturity.
We'd been talked into it when young and naive. Maybe these pensioners were the victims of unscrupulous salespeople.

tanith Sat 21-May-22 09:05:09

Actually the banks should of been more careful in selling them so maybe its not one sided.

timetogo2016 Sat 21-May-22 09:09:33

Hopefully they will have an Endowment policy that should cover what`s left to pay of the mortgage.
If not they were ill-adviced imo.

FarNorth Sat 21-May-22 09:14:57

A lot of people find numbers and finance very confusing and believe that if a bank tells them something is a good deal, that it is true.

Harris27 Sat 21-May-22 09:31:32

We did it, and have had to recently address this. Years of torment and realising that it’s upset our lives and spoilt it. We took one out in our early years and had the endowment policy to pay it off.wasn’t going to be enough. In the end our son has helped us but feel totally ashamed and can’t shake off the feeling of failure. Even though we’ve worked all our lives. We had planned to sell our home but there wasn’t enough equity to buy another house or flat outright awful dilemma.

Harris27 Sat 21-May-22 09:32:39

Zonne yes you were right.

Jaxjacky Sat 21-May-22 09:34:11

Happened to my friend who was totally bewildered by the whole ending of her io mortgage looming and she couldn't afford a new repayment mortgage. She took equity release to pay it off.

JenniferEccles Sat 21-May-22 23:10:19

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.

SueDonim Sat 21-May-22 23:21:46

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.

Teacheranne Sun 22-May-22 01:35:20

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.

mymadeupname Mon 23-May-22 15:02:38

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.

mymadeupname Mon 23-May-22 15:03:12

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/

PinkCosmos Mon 23-May-22 16:50:04

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.

rosie1959 Mon 23-May-22 17:02:01

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.

PinkCosmos Mon 23-May-22 17:04:32

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

MissAdventure Mon 23-May-22 17:06:10

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

Jaylou Mon 23-May-22 17:08:08

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.