Interest only for life?!

Bigtalker

Hello,

Myself and my husband bought our house in 2005 and we got an interest only for the life of the mortgage fixed rate mortgage (for 3 years) and have now moved onto variable rate. we got the Mortgage from BOS

Really we were 23 had no savings and should not have been given the loan but we have it now and are trying to figure out the best way through it. Our house is not big enough to start a family but is approximately 60% of the price we bought it at (based on the neighbours selling).

I am wondering a few things:

1) what is the best way to pay off our mortgage? We are currently saving in a savings account with a great interest rate (higher than our mortgage rate)and plan once we receive the interest increase (quarterly) to pay off some of the premium. Our plan of action is to make sure we have enough to live off for a year incase the worst happens and then use the rest to continue to pay off the mortgage. Is this a bad idea? should we just come off interest only and pay the full amount each month?

2) How will we ever move out of this home? In all honesty we are very lucky and dont have a real problem. Our home is too small to start a family and we would like to upgrade. Will we be able to get a larger mortgage and take on the negative equity? do we need a huge deposit? just trying to understand our options

Any thoughts would be helpful!

chris85

Bigtalker wrote: »

Hello,

Myself and my husband bought our house in 2005 and we got an interest only for the life of the mortgage fixed rate mortgage (for 3 years) and have now moved onto variable rate. we got the Mortgage from BOS

Really we were 23 had no savings and should not have been given the loan but we have it now and are trying to figure out the best way through it. Our house is not big enough to start a family but is approximately 60% of the price we bought it at (based on the neighbours selling).

I am wondering a few things:

1) what is the best way to pay off our mortgage? We are currently saving in a savings account with a great interest rate (higher than our mortgage rate)and plan once we receive the interest increase (quarterly) to pay off some of the premium. Our plan of action is to make sure we have enough to live off for a year incase the worst happens and then use the rest to continue to pay off the mortgage. Is this a bad idea? should we just come off interest only and pay the full amount each month?

2) How will we ever move out of this home? In all honesty we are very lucky and dont have a real problem. Our home is too small to start a family and we would like to upgrade. Will we be able to get a larger mortgage and take on the negative equity? do we need a huge deposit? just trying to understand our options

Any thoughts would be helpful!

I don't quite understand the first line of the post. It states you are on interest only for the life of the terms and fixed rate and then you are on a variable rates.

can you clarify what it is?

Generally interest only was only ever done for investment properties (buy to let) and generally not given to owner occupied residential mortgage.

StillWaters

chris85 wrote: »

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Generally interest only was only ever done for investment properties (buy to let) and generally not given to owner occupied residential mortgage.

Thats not true, BOS were issuing life-time interest only mortgages on residential properties. I have one myself.

Regarding the OP, your option 1 is what I do, save in a high interest account, and fire lump sums off the capital. I wouldn't personally surrender my IO mortgage, as it gives me huge flexibility to save elsewhere, but I suppose it depends how disciplined you are with your saving.

Bigtalker

I think I am right in saying we were on a fixed interest only loan. And we are now on a variable interest only loan.

My concern is are we going to be paying alot more on interest? We have only now got to the stage where we have enough savings that we can start paying off some lump sums and just trying to understand is this the best way?

We received a letter from the bank asking us how we were intending to pay off the full amount. We have not responded to this letter but they were basically trying to move us off interest only. I didnt think it was a good idea.

StillWaters

I think everyone on IO got that letter. I didn't respond. They should have asked that question when they gave me the loan in the first place!!!

TBH, your main issue is the fact the house is not suitable for you in the medium term. In order to get another mortgage, you are going to have to pay down the negative equity. You can do that by saving a lump sum, or paying it monthly off the mortgage. I don't know of any banks that are allowing you to absorb NE into a new mortgage.

chris85

StillWaters wrote: »

Thats not true, BOS were issuing life-time interest only mortgages on residential properties. I have one myself.

Regarding the OP, your option 1 is what I do, save in a high interest account, and fire lump sums off the capital. I wouldn't personally surrender my IO mortgage, as it gives me huge flexibility to save elsewhere, but I suppose it depends how disciplined you are with your saving.

I did say generally and its still a fact that generally this doesn't happen. Honestly its very bad lending practice but that's besides the point I guess.

homer911

All banks are required to offer forbearance measures - the offer made will depend on the staus of the customer. If you can continue to pay IO and throw in the occasional lump sum of the principal, the lender should be quite happy - they have other worse issues to deal with. Your problem is with the size of the property. Banks will in certain circumstances offer a Trade Down/Negative Equity Mortgage (they are required by the Regulator to do this), but usually only where the customer is in arrears and the debt is unsustainable. In your case you are servicing the loan as per schedule, so they are probably unlikely to offer this as an option, especially as its BOSI who are no longer lending anything. Another bank is unlikely to agree to take on your negative equity, unless you can prove that you can readily meet the repayments, and are in secure employment with good prospects. Such a loan would be on a full P&I basis, and probably on a relatively high rate due to the negative equity.

James W

Bigtalker wrote: »

Hello,

Myself and my husband bought our house in 2005 and we got an interest only for the life of the mortgage fixed rate mortgage (for 3 years) and have now moved onto variable rate. we got the Mortgage from BOS

Really we were 23 had no savings and should not have been given the loan but we have it now and are trying to figure out the best way through it. Our house is not big enough to start a family but is approximately 60% of the price we bought it at (based on the neighbours selling).

I am wondering a few things:

1) what is the best way to pay off our mortgage? We are currently saving in a savings account with a great interest rate (higher than our mortgage rate)and plan once we receive the interest increase (quarterly) to pay off some of the premium. Our plan of action is to make sure we have enough to live off for a year incase the worst happens and then use the rest to continue to pay off the mortgage. Is this a bad idea? should we just come off interest only and pay the full amount each month?

2) How will we ever move out of this home? In all honesty we are very lucky and dont have a real problem. Our home is too small to start a family and we would like to upgrade. Will we be able to get a larger mortgage and take on the negative equity? do we need a huge deposit? just trying to understand our options

Any thoughts would be helpful!

If the interest you are currently paying is more than you would be paying in rent for the same property then, from an economic perspective, you would be better off renting. Your current property is a liability rather than an asset.

As I see it you have two issues which are separate but related -

(i) Your home is in negative equity - even if you had been paying interest and capital there would be a shortfall on disposal.
(ii) You are paying only the interest element of your mortgage - you need to 'normalise' this and start repaying the interest and capital over a period whereby you can afford the repayments.

Your mortgage is with BOSI - I am aware that this bank is more open to doing deals than most other banks because they want a clean break from the Irish market. However, they are doing no new lending.

As it presently stands, no other lender will take on the negative equity element of your current mortgage. In addition, you will need a down payment of at least 10% and probably as much as 30-40% and the requirements and checks are now quite rigourous. There is no guarantee at all that you will be approved for another mortgage.

You can hand back the keys or let your current property, and rent a property that would meet your requirements. Unfortunately, in Ireland, if you hand back the keys, you will be liable for the difference between what the bank realises for your property and the outstanding total of the mortgage plus costs. Given that BOSI are keen to do deals, you may be able to work something out. A negative equity element of 40% does sound a little low - I'd have thought 50% more likely.

You could also try to do a deal with BOSI, whereby they write off the negative equity element of your current mortgage - or as much of it as possible, and you finance the balance through another lender - this will be difficult and you will probably need professional assistance.

You can opt to start repaying the interest and capital element of the mortgage and stick with what you have for the next few years, even if it is unsuitable. If you cannot afford to do this on your present property, can you afford to trade up in terms of another purchase?

Interest only mortgages were intended for investment properties with quick turnover and profit realisation. A friend of mine was tempted by an interest only mortgage when buying her house in 2005 - I strongly advised against this. If you cannot afford to repay the interest and capital, then you cannot afford a mortgage.

Marcanthony

Bigtalker wrote: »

Hello,

Myself and my husband bought our house in 2005 and we got an interest only for the life of the mortgage fixed rate mortgage (for 3 years) and have now moved onto variable rate. we got the Mortgage from BOS

Really we were 23 had no savings and should not have been given the loan but we have it now and are trying to figure out the best way through it. Our house is not big enough to start a family but is approximately 60% of the price we bought it at (based on the neighbours selling).

I am wondering a few things:

1) what is the best way to pay off our mortgage? We are currently saving in a savings account with a great interest rate (higher than our mortgage rate)and plan once we receive the interest increase (quarterly) to pay off some of the premium. Our plan of action is to make sure we have enough to live off for a year incase the worst happens and then use the rest to continue to pay off the mortgage. Is this a bad idea? should we just come off interest only and pay the full amount each month?

2) How will we ever move out of this home? In all honesty we are very lucky and dont have a real problem. Our home is too small to start a family and we would like to upgrade. Will we be able to get a larger mortgage and take on the negative equity? do we need a huge deposit? just trying to understand our options

Any thoughts would be helpful!

I dont think prices have bottomed out yet and It will be a while before supply is on the same basis as demand.So selling properties is a problem as well as the negative equity.Buyers market at present and will be for a number of years to come.So your neighbours selling prices are negotiable and your negative equity is likly to be more than 40% of the price you bought it for.
I also can not see BOSI now or in the near future allowing negative equity mortgages been transfered on to new mortgages (unless the princible sum is decreasing significantly. However I would call that down grading) or any other bank taking on a negative equity mortgage from a different provider.
So basically how long would it take you with the savings you are making to get your mortgage princible down by 50%. (50% been the worse case of your negative equity and agreeing a sale).
Can this be done in a time that suits your plans in life. (having children ect).
If not, the best possible course of action available to you. Would be to use your savings to extend your property. Once you have a house and not an apartment regardless of its size/garden size. With proper planning you would be amazed the additional space you can create to match your familys needs and additional size in your property. Will increase its price.
With building costs at an all time low. Its probably the best time to extend.You could then depending on your financial situation, work out a payment method to pay additional money of the princible of your mortgage.
Property prices will eventually bottom out and the supply of properties will not be as much as it is at present. Population will increase to meet the supply and when prices bottom out an increase in prices should develope.It will probably take 20 years plus for the price of your property to be worth the price you paid for it. But as long as your paying off the princible balance. it will take less time to get you out of the negative equity.
As long as you can afford to pay off the princible sum. It will just be a long term investment.For example I have a property thats worth approx 50/60% less than what I bought it for. However I originally took out a 30 year mortgage. I am in to the 7th year now and I have adjusted my payments paying additional money each mount to cut it to what would have been a 20 year mortgage. So as long as I can keep up with the repayments.I will not have a mortgage in 12.5 years time and get out of negative equity faster.
Also remember that at the end of your Intrest only term, the bank will want their money back and you may be still in negative equity (you will have to sell and make up the difference ). Also every 100k borrowed with an intrest only loan over 30 years.Costs about 50k more in intrest repayments than repaying the princible over 30 years. As your paying intrest on the full amount borrowed every mount for 30 years . Whereas the interest gets smaller as the loan decreases.So a 300k loan could cost you 150k more in intrest payments and you still owe the bank 300k at the end of the term.
Intrest only is a bad investment and relying on an increase in the price of your property to pay off the capital debt at the end of the mortgage term is a risky gamble and costing you money.
my advice wouldbe to switch from interest only to repayment of the princible amount over a term and extend your property to suit your needs.
However what ever you decide to do that suits your plans in life.I hope all turns out well.Best of luck.

Marcanthony

James W wrote: »

If the interest you are currently paying is more than you would be paying in rent for the same property then, from an economic perspective, you would be better off renting. Your current property is a liability rather than an asset.

You can hand back the keys or let your current property, and rent a property that would meet your requirements. Unfortunately, in Ireland, if you hand back the keys, you will be liable for the difference between what the bank realises for your property and the outstanding total of the mortgage plus costs.

Once their Intrest only mortgage is not greater than 300k. They are working out with their repayments lower than renting. (Iam working this out on average rental prices in the current climate , based on properties bought 7 years ago at 300k). However when they lose their intrest relief.It will end up that they will be better of renting. As the rental price will be lower than the 300k repayments at 4.5% intrest or higher.

If they let their property.They will lose their intrest relief and accur additional expenses such as €200 second home tax. Letting fees, maintaince fees , accountants fees ect and if the property ends up vacant would they be able to afford the rent and the payment on theirr property.It would cost them more in the long run.

Walking away from the property is also a bad idea. If at any stage you come into money.It will be taken including fees and charges.without mentioning your credit rating will be zero.