Mortgage fix

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  • pangolin
    pangolin Posts: 6,304
    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.
    - Genesis Croix de Fer
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  • pblakeney
    pblakeney Posts: 25,706
    pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    Seems the most likely scenario.
    The above may be fact, or fiction, I may be serious, I may be jesting.
    I am not sure. You have no chance.
    Veronese68 wrote:
    PB is the most sensible person on here.
  • surrey_commuter
    surrey_commuter Posts: 18,866
    If they have a £200k interest only mortgage that had a fixed rate of 2% and now it went o 6% you could get those numbers.

    To have borrowed that much they must have been earning £50-70k circa five years ago so unless they have had a dramatic change in earnings then £900 a month for mortgage/rent is still low. Maybe time to cut back on the avocados
  • morstar
    morstar Posts: 6,190
    Hadn’t considered interest only.
    My bad.
  • pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
  • rick_chasey
    rick_chasey Posts: 72,517
    edited June 2023

    pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
    All that wonderful (tax free) capital gains, surely?

    Guy I work with uses an IO mortgage because the rate he got on it was lower than the returns he thought he could get with the money in investments etc.
  • pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
    All that wonderful (tax free) capital gains, surely?
    Accessing that gain might be tricky. The idea behind being "mortgage-free" isn't to be "house-free" as well!

  • Guy I work with uses an IO mortgage because the rate he got on it was lower than the returns he thought he could get with the money in investments etc.

    That's fine, as if his lender forces him to a repayment mortgage then he can redirect his budget from separate savings plans to the capital element of new mortgage payment.

    It's the folk with IO mortgages and no separate repayment plan that concern me as if forced onto a repayment mortgage they've got to find extra income to cover the repayment element and the higher interest charge.

  • Pross
    Pross Posts: 40,435

    pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
    They're effectively renting albeit with more security. My first mortgage was also interest only with an endowment, it had never crossed my mind that you could get a mortgage on interest only without having proof of something in place to pay off the capital. As you say the risk to the lender is fairly minimal as the house is almost certainly going to increase substantially in value over the mortgage term but it's a whole lot of hassle for them if they have to go through a repossession process and then sell the house (my sister deals with the legals on that side of thing for a building society).
  • Stevo_666
    Stevo_666 Posts: 58,383

    pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
    All that wonderful (tax free) capital gains, surely?
    Accessing that gain might be tricky. The idea behind being "mortgage-free" isn't to be "house-free" as well!

    Having money is great; not having anywhere to live less so :smile: Surprised we have to explain this.
    "I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]
  • rick_chasey
    rick_chasey Posts: 72,517

    pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
    All that wonderful (tax free) capital gains, surely?
    Accessing that gain might be tricky. The idea behind being "mortgage-free" isn't to be "house-free" as well!

    Sell and rent isn’t that wild.
  • surrey_commuter
    surrey_commuter Posts: 18,866
    Pross said:

    pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
    They're effectively renting albeit with more security. My first mortgage was also interest only with an endowment, it had never crossed my mind that you could get a mortgage on interest only without having proof of something in place to pay off the capital. As you say the risk to the lender is fairly minimal as the house is almost certainly going to increase substantially in value over the mortgage term but it's a whole lot of hassle for them if they have to go through a repossession process and then sell the house (my sister deals with the legals on that side of thing for a building society).
    The problem with this theory is that you are likely to be repossessing when the market is stressed.
  • surrey_commuter
    surrey_commuter Posts: 18,866
    I have always gone IO only as I have had the discipline to save the money, you can always pay down at 10% a year if you want.

    The problem is that I did not put it in separate accounts so it will be a wrench to drain the savings.

    This is proper investing not selling kids toys on ebay


  • pep.fermi
    pep.fermi Posts: 326
    edited June 2023


    Guy I work with uses an IO mortgage because the rate he got on it was lower than the returns he thought he could get with the money in investments etc.

    This is the thing.
    I'm repaying capital. But I purposely do it much slower than I could, because with 20yr fixed 1.91% I'm willing to bet that pouring the additional capital repayment I could make, instead into the stock market, will ultimately have give better return.
    In fact, I regret I did not take out a bigger loan, I bet at the end of the 20yr we would be better off.
  • surrey_commuter
    surrey_commuter Posts: 18,866
    pep.fermi said:


    Guy I work with uses an IO mortgage because the rate he got on it was lower than the returns he thought he could get with the money in investments etc.

    This is the thing.
    I'm repaying capital. But I purposely do it much slower than I could, because with 20yr fixed 1.91% I'm willing to bet that pouring the additional capital repayment I could make, instead into the stock market, will ultimately have give better return.
    In fact, I regret I did not take out a bigger loan, I bet at the end of the 20yr we would be better off.
    A good policy but I would highlight that conventional wisdom suggests that you should move out of equities with 5 years to go.
  • rick_chasey
    rick_chasey Posts: 72,517
    Should add after fund fees (he went active, doh) his returns are hardly stellar and obviously he found 2022 fairly stressful.
  • Dorset_Boy
    Dorset_Boy Posts: 6,915

    Should add after fund fees (he went active, doh) his returns are hardly stellar and obviously he found 2022 fairly stressful.

    If he was investing on a monthly basis, and has a number of years to go, why would 2022 have been stressful?
    He'd win well as a result of pound cost averaging over the medium to longer term.
  • pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
    All that wonderful (tax free) capital gains, surely?
    Accessing that gain might be tricky. The idea behind being "mortgage-free" isn't to be "house-free" as well!

    Sell and rent isn’t that wild.
    Three obvious downsides:
    - Loss of future value growth
    - Paying new property owner's profit margin in your rent
    - Loss of control as there's no guarantee you'll always be able to rent what you need

    Probably best in the long term to have a plan in place to repay your mortgage e.g. via the tax free lump sum part of a pension.

  • Pross said:

    pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
    They're effectively renting albeit with more security. My first mortgage was also interest only with an endowment, it had never crossed my mind that you could get a mortgage on interest only without having proof of something in place to pay off the capital. As you say the risk to the lender is fairly minimal as the house is almost certainly going to increase substantially in value over the mortgage term but it's a whole lot of hassle for them if they have to go through a repossession process and then sell the house (my sister deals with the legals on that side of thing for a building society).
    The problem with this theory is that you are likely to be repossessing when the market is stressed.
    It will certainly be interesting to see how resi lenders react if there are largescale defaults in the next few years. In the corporate world, or at least our part of it, we put a lot of effort into avoiding taking possession. It's generally better to work out some way of keeping the Borrower in the property with a "work out" plan that they implement at their cost.
  • Dorset_Boy
    Dorset_Boy Posts: 6,915

    Pross said:

    pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
    They're effectively renting albeit with more security. My first mortgage was also interest only with an endowment, it had never crossed my mind that you could get a mortgage on interest only without having proof of something in place to pay off the capital. As you say the risk to the lender is fairly minimal as the house is almost certainly going to increase substantially in value over the mortgage term but it's a whole lot of hassle for them if they have to go through a repossession process and then sell the house (my sister deals with the legals on that side of thing for a building society).
    The problem with this theory is that you are likely to be repossessing when the market is stressed.
    It will certainly be interesting to see how resi lenders react if there are largescale defaults in the next few years. In the corporate world, or at least our part of it, we put a lot of effort into avoiding taking possession. It's generally better to work out some way of keeping the Borrower in the property with a "work out" plan that they implement at their cost.
    So long as the interest can be paid and there isn't negative equity in comparison to the debt, the lenders will not worry too much.
  • Pross said:

    pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
    They're effectively renting albeit with more security. My first mortgage was also interest only with an endowment, it had never crossed my mind that you could get a mortgage on interest only without having proof of something in place to pay off the capital. As you say the risk to the lender is fairly minimal as the house is almost certainly going to increase substantially in value over the mortgage term but it's a whole lot of hassle for them if they have to go through a repossession process and then sell the house (my sister deals with the legals on that side of thing for a building society).
    The problem with this theory is that you are likely to be repossessing when the market is stressed.
    It will certainly be interesting to see how resi lenders react if there are largescale defaults in the next few years. In the corporate world, or at least our part of it, we put a lot of effort into avoiding taking possession. It's generally better to work out some way of keeping the Borrower in the property with a "work out" plan that they implement at their cost.
    So long as the interest can be paid...lenders will not worry too much.
    Agreed. But that is a fairly big "If".

  • monkimark
    monkimark Posts: 1,500
    I am currently in the process of selling my house and looked at renting as an interim measure.
    There are 3 properties available in my (large) village.
    - a 1 bed flat
    - a 2 bed flat
    - a 6 bed house

    the flats are no use (family of four) and the house is somewhat pricey at nearly £6k a month.

    pangolin said:

    £100k on a 25 year term at 1% gets you to £377 a month. But even jumping all the way to 7% is still "just" £700.

    Maybe they were on interest only and are getting forced off that.

    I wonder how folk on IO mortgages in the past few years were planning on paying off their loan. Obviously, the lender's plan in extremis would be to repossess the house, so wouldn't have been overly bothered about debt paydown, but that's not an optimal strategy for the borrower.

    I'm old enough to have had an IO mortgage first time out (1991) with an accompanying endowment mortgage. By the mid 90s the inflationary / investment return outlook had changed so I switch to a repayment mortgage with the endowment policy being an extra savings plan. (Not a great one, but nowhere near as bad as the bad press attracted by endowment policies might suggest.)
    All that wonderful (tax free) capital gains, surely?
    Accessing that gain might be tricky. The idea behind being "mortgage-free" isn't to be "house-free" as well!

    Sell and rent isn’t that wild.
  • shirley_basso
    shirley_basso Posts: 6,195
    Wanted to bring this up as a possible idea.

    My mortgage is about to go up considerably from 1/3/24. I get a reasonable bonus from work and had a thought could reduce interest and keep payments down to their current levels.

    Can I (assuming I time it right) make a lump sum payment onto my mortgage, reducing the principal (and thus interest) and then continue paying at my historical levels, as it would be effectively gradually unwinding the overpayment?

    The idea would be to do this each year, as bonuses are paid. I do know that overpayments are typically only captured at the end of the prior year, so need to time it right.

    Failing that, what about a offset tracker, although with rates only likely to go up, I can't see it being that clever. Feels like a 5y fix is the most sensible.
  • TheBigBean
    TheBigBean Posts: 20,551
    This is Nationwide's policy. Looks like you can do what you want.

    https://www.nationwide.co.uk/mortgages/existing-mortgage-members/underpayments/
  • rjsterry
    rjsterry Posts: 27,594

    rjsterry said:

    Not sure what good it does you being resentful of someone else getting something that you don't need.

    It's not going to make any difference to how much tax you pay.

    It is those of us who chose to exercise some self-discipline as we did not want to face the consequences of it going wrong ending up having to face the consequences of it going wrong for somebody else.

    The % of net contributors in this country is very small and I suspect in CS it is the reverse, how exactly are we not paying for other peoples bad choices?
    Do you sit there grinding your teeth at your car insurance premiums going up because other people have had accidents?

    Like I say, there is absolutely zero to be gained by feeling bitter about helping people who have been caught out/are less fortunate. And who TF are you to pontificate on what the right balance of risk/reward is. You got lucky as much as being shrewd and careful. Most of us are just a diagnosis away from losing it all as Stevo pointed out.
    1985 Mercian King of Mercia - work in progress (Hah! Who am I kidding?)
    Pinnacle Monzonite

    Part of the anti-growth coalition
  • surrey_commuter
    surrey_commuter Posts: 18,866

    Wanted to bring this up as a possible idea.

    My mortgage is about to go up considerably from 1/3/24. I get a reasonable bonus from work and had a thought could reduce interest and keep payments down to their current levels.

    Can I (assuming I time it right) make a lump sum payment onto my mortgage, reducing the principal (and thus interest) and then continue paying at my historical levels, as it would be effectively gradually unwinding the overpayment?

    The idea would be to do this each year, as bonuses are paid. I do know that overpayments are typically only captured at the end of the prior year, so need to time it right.

    Failing that, what about a offset tracker, although with rates only likely to go up, I can't see it being that clever. Feels like a 5y fix is the most sensible.

    I think you need to separate the psycological desire to reduce your monthly outgoings from good financial planning. They may of course be one and the same thing.

    You have hinted at the magnitude of your rise in monthly payments but to my sh1t maths if your bonus is big enough to make that large a dent then why not use it to make the increased payments? savings rates are pretty high so you would not be losing out that much. Or as you say use an offset but from my casual look you would need a big % of the total to make that worthwhile.

    Other things to consider, when your term comes up you could pay off a lump sum and extend the term as applicable to keep your monthly outgoings the same.

    You can sign up to a new deal 6 months before expiry and I believe many let you cancel at no cost and rebook a better deal if things improve.

    Last thought, when I can make my mind up between two options then I do 50/50. So rather than putting all your bonus in put in half.
  • shirley_basso
    shirley_basso Posts: 6,195
    Thanks SC:

    So to take the points in turn:

    1)
    There is no specific psycological desire to reduce monthly outgoings. The facts are my mortgage will go up by a considerable amount, making monthly payments touch and go from my normal salary (below inflation payrise, thank you). My main thinking is - it would be nice to keep monthly outgoings the same so I can enjoy my meagre payrise and put my bonus to work (which is a bit more than i was hoping for) by reducing the principal which has a longer term impact.

    2) My thoughts are twofold
    a) Overpayments reduces principal which both reduces mortgage term and reduces interest cost (all things being equal).
    b) By making an overpayment, that will help both reduce interest cost but also mean that I can underpay going forward, so my net contributions for the year are still the same, only that the bulk of them went towards principal.

    If I just put my bonus in a current account, I will still be paying the obscene monthly payments, except all the additional cost will only go towards the additional interst, which is a total waste.

    3) I have about 30y left on my mortgage so little point overpaying and extending (as discussed it just adds to the cost)

    4) I will have a think.
  • rjsterry
    rjsterry Posts: 27,594
    edited July 2023
    pblakeney said:

    Baling out mortgages will, like housing benefit, not help the people it's intended to, but will prop up house prices and go into banks' profits. Those with the most financial muscle will take the biggest benefit, at the expense of taxpayers.

    This is true. If there is to be a bailout the there is no point in the BoE increasing interest rates.
    No mortgages are being bailed out.

    Edit: sorry I realise this is now old news
    1985 Mercian King of Mercia - work in progress (Hah! Who am I kidding?)
    Pinnacle Monzonite

    Part of the anti-growth coalition
  • surrey_commuter
    surrey_commuter Posts: 18,866

    Thanks SC:

    So to take the points in turn:

    1)
    There is no specific psycological desire to reduce monthly outgoings. The facts are my mortgage will go up by a considerable amount, making monthly payments touch and go from my normal salary (below inflation payrise, thank you). My main thinking is - it would be nice to keep monthly outgoings the same so I can enjoy my meagre payrise and put my bonus to work (which is a bit more than i was hoping for) by reducing the principal which has a longer term impact.

    2) My thoughts are twofold
    a) Overpayments reduces principal which both reduces mortgage term and reduces interest cost (all things being equal).
    b) By making an overpayment, that will help both reduce interest cost but also mean that I can underpay going forward, so my net contributions for the year are still the same, only that the bulk of them went towards principal.

    If I just put my bonus in a current account, I will still be paying the obscene monthly payments, except all the additional cost will only go towards the additional interst, which is a total waste.

    3) I have about 30y left on my mortgage so little point overpaying and extending (as discussed it just adds to the cost)

    4) I will have a think.

    this is not my forte so see this as thinking out loud.

    if you pay off a lump sum and reduce the monthly payments I doubt you are reducing the term though it will reduce the overall interst bill.

    Assuming you are going from circa 2% to circa 6% I am struggling with how you can keep your monthly payments the same unless you are paying off two thirds of the outstanding. This might be through me not understanding.

    If you assume rates will be 4% for the next 30 years, how about reducing your monthly payments to that level and either reduce the term or keep some bonus back for other purposes
  • shirley_basso
    shirley_basso Posts: 6,195
    So lets assume things:

    Current mortgage of £250k cost £1k pm (12k per year)
    Rolls onto a 2 year fix at £2k pm (£24k per year, £48k over two years).

    Day 2 of new mortgage pay., say £20k.

    I am trying to have my cake and eat it here so I appreciate it may not work:

    1) Reduce principal to £230k so reduced interest over the term;
    2) Effectively paying off in advance a slug of the £48k, so now only £28k payable over the two years; and
    3) Given the principal is less from day 1, the interest is less, so under the new regime, the £48k is now, say £46k, so actually £26k payable over the two years

    Then do the same in year 2...and so on.