What happens went they want your Mortgage money?

[OwlHoot]

Like all sophisticated, edgy, middle class people I carry an interest-only mortgage. The idea you strive through your life to own your own home but do not similarly attempt to buy the rail franchise for your commute to work has always struck me as so illogical but even worse, so last century. My mate John has loads of money but still keeps a £200k mortgage ticking over.

However the fly in the ointment here is the bank will ring me up in a few years and say the term has finished: Can the have their money back?

I've assumed that between now and then, given a) the vast number of people who've got mortgages they can't afford and b) the fact the Equity Release is often used to fund a mortgage (for offspring) and banks love mortgages, they will have piled heavily into lifetime mortgages. However I'm not seeing huge movements yet.

Have any of you had these conversations with your banks? Do they give you more time or are they worried about lending-into-retirement?

Can't you simply remortgage?

I must say I've always detested the idea of an interest-only mortgage, not least because each time I applied for a mortgage, the building society wallahs tried desperately hard to persuade me to choose one, and what's obviously so good for them (I reasoned) probably won't be good for me. But also, the extra tenner a month, or whatever it was, to be paying off the principle as well as the interest seemed literally a small price to pay.

[The_Equalizer]

You know full well that IO mortgages are earners for the banks. I'm busting a gut with the missus to get her's paid down. IOs also distorts the market allowing for far greater sums to be lent.

[DimPrawn]

You know full well that IO mortgages are earners for the banks. I'm busting a gut with the missus to get her's paid down. IO's also distorts the market allowing for far greater sums to be lent.

Very true.

[Cirrus]

For those not familiar with this, the State got worried a few years ago about all the money that was lent during the Great 2000-2008 Asset Bubble. As we know a lot of it went to people who were gambling. However like with the evil banks, the State decided Moral Hazard was too unacceptable a principle to apply so they put pressure on lenders not to repossess purely because bricklayers living with their mums couldn't meet their payments on their BTL etc speculative £900k mortgages. One part of this was to put the obligation on the lenders to cover affordability including lending-into-retirement. As a result we interest-only types have received various circulars asking for repayment plans. Lloyds, for one, seem to have got ever more superficial, most recently just sending some government leaflet. They are frightened about Equity Release/Lifetime Mortgages because they don't want another £n billion of mis-selling fines but soon the State will realise they are going to have to encourage the banks in order to avoid tons of middle class people having to move to Bradford/Salford. I just wondered what people have seen happening so far. Letting you roll-on after your term would be a de facto Lifetime Mortgage.

I have plenty of money but it's in the company or pensions. Drawing down to pay a mortgage pushes you into higher rate tax. No point in that.

[BrilloPad]

Can't you simply remortgage?

Then the mortgage has to end while you can still earn. Typically 65 or 70.

[TykeMerc]

Well the traditional approach was for the capital value to be eroded by inflation (monetary and property value) so that at the end of the term the capital could be repaid out of pocket change or the property sold to do a downsize to the country and pay it off from the equity.

Hardly rocket science, but the reality of the zero rate economy may well change the situation.

As MF has said it's a perfectly sensible strategy IF you can afford to buy properties out of money you actually have, but that's rather different from the typical interest only mortgagee.

[dx4100]

For those not familiar with this, the State got worried a few years ago about all the money that was lent during the Great 2000-2008 Asset Bubble. As we know a lot of it went to people who were gambling. However like with the evil banks, the State decided Moral Hazard was too unacceptable a principle to apply so they put pressure on lenders not to repossess purely because bricklayers living with their mums couldn't meet their payments on their BTL etc speculative £900k mortgages. One part of this was to put the obligation on the lenders to cover affordability including lending-into-retirement. As a result we interest-only types have received various circulars asking for repayment plans. Lloyds, for one, seem to have got ever more superficial, most recently just sending some government leaflet. They are frightened about Equity Release/Lifetime Mortgages because they don't want another £n billion of mis-selling fines but soon the State will realise they are going to have to encourage the banks in order to avoid tons of middle class people having to move to Bradford/Salford. I just wondered what people have seen happening so far. Letting you roll-on after your term would be a de facto Lifetime Mortgage.

I have plenty of money but it's in the company or pensions. Drawing down to pay a mortgage pushes you into higher rate tax. No point in that.

That money needs using at some point and I don't think higher rate tax treatment is getting better anytime soon. If you have money to pay of debt which would give you an asset, keeping it locked in the business seems a bit questionable.

That money is going to get taxed at some point?

[LondonManc]

If I clear my mortgage and have nothing secured against the house, I have some big positives:
Nobody can come for the house if I am long time benched
I have an asset against which I can raise money in the future
I've not got several hundred pounds a month leaving my account
I've no worries years down the line about still owing half the original amount when my endowment falls well short.

[jaffab]

I assume you have not had to change your mort details (change 'scheme'/product for a different interest rate, fixed term, discount, etc) for a while. As others have said, everything has changed, if you ever need to contact them for a better deal, they will ask the questions.

This weekend I had to call my lender as my old 3-year fixed term was coming to an end and I didn't want the 'base rate' of 3.99%, I wanted the discounted rate. My mort is also IO. Last time I did this (3 years ago), the phone call took 5 minutes (I want your x.x% product for 5 years, OK that's fine, change done)... this time it took 2.5 hours with many many questions. Of this, the first question was "how are you going to pay it back at the end".

Now for me, I have been making massive overpayments (upto my limit) ever since interest hit 0.5%, and I have BTL properties which I would sell one to pay off the mortgage so my lender was very happy with my plans. But, if things ever change and you speak to your lender, be prepared for the "how are you going to pay it back" question to be asked (and they will want evidence of whatever your plan is).. if you have no plan or evidence, be prepared for them to STRONGLY suggest you switch to repayment.

As for the 'will banks extend morts beyond the current term', I would suggest that that will depend on your age, your situation, and also the lenders situation in terms of the Interest Only Timebomb that we are heading towards (there will be LOTS of people on IO who will struggle to pay off their loan).

[eek]

Long story short, if you can't refinance or sell the house to release the equity you owe, the bank takes the house, sells it at auction to cover their liability which will be much less than market value

And will pursue you for ever more for any amount still outstanding. I can point to people older than me who suffered that in the late 90s