Interest only mortgages in a falling market?

[Howitzer]

Then.

Your objections to interest-only seem to be on the grounds of over-borrowing? Howitzer, you seem to be confusing interest-only with 100% mortgages in the same sentence?

There seems to be some confusion in this thread. Any lender who offers an Interest Only facility assesses the application as if it was a repayment/annuity loan. So the lender assesses if the applicant(s) can afford the repayments according to their criteria on a repayment mortgage and then offers an interest-only facility if requested.

Nobody gets a larger loan because they choose Interest Only.

Now.

The problems were overborrowing and overspending. Interest only mortgages are only a problem, insofar as they facilitate overborrowing.

Ok everyone can change their opinion as the facts change or become more apparant but what are we going to do now?

We're at a crossroads. People are looking for solutions. If we're now certain that IO mortages were a causal factor in overborrowing then they can't be part of the solution. People flying kites on the lines that 50 and 60 year mortgages are the solution are no better. There are 2 types of solutions on offer, those that help the consumer and those that help the banks.

(Disclosure: I do not own property or any banking shares. I am an Irish tax payer.)

 

[DerKaiser]

Then.


Now.

Ok everyone can change their opinion as the facts change or become more apparant but what are we going to do now?

We're at a crossroads. People are looking for solutions. If we're now certain that IO mortages were a causal factor in overborrowing then they can't be part of the solution. People flying kites on the lines that 50 and 60 year mortgages are the solution are no better. There are 2 types of solutions on offer, those that help the consumer and those that help the banks.

(Disclosure: I do not own property or any banking shares. I am an Irish tax payer.)

I think the point still stands that if you have an investment mortgage and a residential mortgage, you pay down the residential mortgage first.

As for interest only contributing to wreckless lending, that would be a flaw in the approvals system. You should not be given a higher mortgage simply based on the fact you choose to pay it off over a longer period.

In terms of genuine solutions on offer, the only ones that make sense to me involve reducing your debts to arrive at a level of repayment your income can reasonably support over your working life.

 

[kaplan]

Regulating at the product usage level is at the heart of US recent changes in consumer protection. New laws will make it possible to regulate for standard, simple credit products to counteract lenders ability to manipulate consumer behaviour into using too much credit. The underlying concept is a move towards regulating for safety standards - seems that a lot of dubious mortgage features and practices may be regulated out.

One of the problems with consumer protection is the belief in the "wise, rational and informed consumer" who acts to protect themselves against misselling. Using a mix of consumer education, producer disclosures and codes of conduct it's believed that rational consumers will act en-masse as a form of meta-regulation. US legislators have realised that this is not possible to achieve - the idea of safety standards in the use of credit and other products by consumers appears to be a strong move towards protecting consumers from themselves and from banks.

Kaplan

 

[Booter]

I think the point still stands that if you have an investment mortgage and a residential mortgage, you pay down the residential mortgage first.

Other than the security of clearing debt associated with one's family home, why would this be the case? Would it not be wise to clear down the most expensive loan as a priority, whichever loan that may be?

 

[DerKaiser]

Other than the security of clearing debt associated with one's family home, why would this be the case? Would it not be wise to clear down the most expensive loan as a priority, whichever loan that may be?

75% of the interest paid in any year on investment mortgages as allowed as a cost to offset against rental revenue in calculating taxable profit, so the interest cost of borrowing for an investment property is effectively reduced.

Things might not be so clear cut at the moment (mainly due to current low interest rates) for the following reasons:
The interest rate on investment mortgages might be higher
Mortgage interest relief on residential might not be at its ceiling

Also, if the % of interest allowed as an offset to rent on investment mortgages continues to be reduced, this will change.

And finally it obviously depends on the marginal rate of tax you pay

 

[Howitzer]

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"We are now calling for a complete end to the issue of any new interest-only mortgages. This repayment option is no longer tenable in this environment. These mortgages were based on a premise that people’s incomes would continue to rise and so too would property values," he said.
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[canicemcavoy]

[broken link removed]
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These are "professionals"?

Heaven help us. They honestly thought property prices and wages would rise forever.

 

[Howitzer]

[broken link removed]

Interest-only mortgages depended on a rising market and now many in the small-time landlord sector smell trouble, writes JACK FAGAN

JUST WATCH how the storm clouds gather over the interest-only mortgage market. To the casual observer, this banking option had particular appeal with investors at the height of the property boom. They relied on capital appreciation to keep values rising until it was time to flip on the property. The formula worked like a treat until the housing bubble finally burst and caught many people out.

But contrary to popular belief, the interest-only terms were not entirely confined to investors buying rental properties and developers anxious to get their hands on even more development land. No, the interest-only candy pot was also raided by an estimated 10,000 accountants, lawyers and other professionals who spent between €1 million and €2 million each on buying homes with a typical loan-to-value mortgage of 80 per cent. Ominously, the Irish Brokers Association is now warning that, with the value of many of these homes down by 50 per cent, “another disaster is waiting to unfold”.
....

 

[Max Johnson]

I've recently asked my mortgage company to switch me from interest-only back to capital plus interest.
Will this effect my tracker status?

Thanks