How do you pay a mortgage for 36 years, still owe 200,000 and get your house repossessed? More to this story.
Because he never actually paid off a penny of his mortgage, he just paid the interest without putting anything in place to settle the balance when the mortgage term ended and needed paying off.
I wouldn't have thought that was even possible, I had an endowment mortgage and paid the interest and into a growth fund to pay the house at the end. Further to that with the house value going up so much in 40 years surely there was the option to sell, pay off the mortgage and buy something else smaller. As said much more to this than what was on the news.
Interest Only mortgages used to be pretty rare, but they do seem to be more common nowadays. In fact some consumer websites actually push them as a good idea as it reduces your monthly repayments, so if you are coming off a fixed term mortagage with low interest into the current market there is less of a hit on your finances. One of my mates has had one for about 15 years. I personally can't get my head around paying loads of interest on such a large amount and never actually reducing the debt, as the Look North example shows you are just delaying the inevitable need to actually repay what you borrowed.
I'm not sure why they are allowed, but you can take out an interest only mortgage without any provision for what happens at the end of the term. I had one and at the end of the term I'd paid more than the mortgage amount without a penny of the original mortgage amount having been paid off.
I think interest only mortgages are quite common in the rental market. Rent covers the interest payment and the borrower can just sell the house to repay the loan as in most cases he won’t want to live in it.
There’s been some real horror stories such as people coming to the end of a 25 year term and ending an interest only mortgage only then to realise that they still owe the full purchase price on a property with no ability to pay it. You can only surmise that things weren’t clearly explained to them in the first place. I took out an interest only mortgage with an endowment to pay off the capital in the early 90s but soon binned it in favour of something more sensible. The endowment product would have had to make around 12% per annum growth to pay the capital off. All through the 90s it was making around 4% and I doubt that it improved too much after I binned it.
I'm not sure how you can not know, you get an annual mortgage statement and in the last couple of years of the term you get loads of correspondence warning you that it's coming to end and you'll need to settle the balance. I think it's more down to people burying their head in the sand. Generally, by the end of the term there's a lot more equity in a property than the original mortgage amount, so there's usually the option of downsizing to deal with it. I suspect it's only if you ignore it and hope it will go away, that you end up having it repossessed and flogged cheap, as seems to have happened in the case posted on here.
As said I had an endowment mortgage, distinctly remember being told that going on previous experience the endowment would be worth about double the amount required to pay the cost of the house. Some years later plenty of people claimed and got compensation and a better mortgage deal because the endowment wasn't going to cover the house price. They were miss sold was the explanation. As I was working away I never got to make a claim, but as soon as I had saved enough I paid off the loan, I was shocked when I asked how much do I owe after paying for about 12 years to find it was the same as on day one. But hey oh its paid and I let the endowment side run it's full term, on maturity it hadn't reached double the house value but was about 10% under.
Agree about the head in sand trick. If this bloke’s been paying interest for 40 years though he might well have started in the 80’s with a much smaller mortgage then just kept borrowing more and more on interest only and the value of his house just didn’t keep up. Could easily have been victim of an unscrupulous mortgage adviser, there were plenty around in those times.
I was told the same about being able to pay off the house and also having a big lump sum left. Because I was regularly reviewing the situation I realised that this was never going to happen so bailed to a better product. Many people aren’t financially savvy and, as you say, were at best missold products and at worst, lied to, by unscrupulous salesmen chasing commission. I get that it’s the individual’s responsibility to be aware of their own situation but interest only mortgages were risky and complex. - as the fact that compensation has often been paid shows, the methods used to sell them were often unreasonable.
I fell foul of a ****ty mortgage deal in the 80’s. The attraction was a very low interest rate for 3 years. Fine except that the difference between what I paid and what I would have paid at normal rates was tacked onto the capital sum. But that didn’t matter because the wonderful endowment policy I bought would cover it and much more. Took me a year or two to spot this and get myself out of it. This was back in the late 80’s, the loadsamoney days.
We bought a 4 bed detached house in Swanland for 150k mid 90’s on an interest only mortgage. Sixteen years later all the kids had left home so we sold it for 320k, paid off the mortgage, and bought a semi in Anlaby with what was left. Worked out perfectly for us.
Very similar to us Ernie. From 84 to 90 we had moved 3 times, all with endowment mortgages, and then it clicked that the endowment may not cover the cost even though we had been told we would make loads of money at the end of the term. We changed to a repayment mortgage over 20 years ago following our move down south and paid off the mortgage about 6 years ago. But the biggest mistake l made was keeping the endowment payments going and though it was a nice little earner when they matured the interest rate they achieved was very poor and I should have paid into a tracker fund or similar rather than the endowment.
Familiar tale. The endowment business in the 80/90/00’s was scandalous, not quite on the ppi scale but probably more painful for the people caught up in it.
