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Interest only mortgage query

Community Veteran
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Interest only mortgage query

Can anyone explain to me what happens at the end of the "term" on an "interest only payment" type mortgage  ?

Does the person who paid deposit, and the "interest only" own the property, and if they sell it, they hand back the "original" purchase price value back to the mortgage company.  OR... does the mortgage company own it, and can sell it, keeping all the moneies involved? or what  ? ? ?

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Community Veteran
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Re: Interest only mortgage query

As I understand it the property is still owned by the Building Society.

The property value will have risen over the years and what it was valued at compared to it's current value is irrelevant, if sold the Building society will get todays value.

Many people thought endownment mortages were a way of repaying the money at the end of the final term, unfortunately as many now know the endownment paid out much less thus leaving the householder to make up the difference to pay the final sum.

The building may allow you to continue to pay the mortgage after the agreed number of years is up but equally it is a fix term contract for a number of years so are not obliged to extend it.

Superuser
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Re: Interest only mortgage query

Does the person who paid deposit, and the "interest only" own the property, and if they sell it, they hand back the "original" purchase price value back to the mortgage company.

The mortgage company doesn't 'own' the property, they have a 'charge' against it for the amount of the mortgage. So you either pay them that amount to release the charge, remortgage or they force a sale. In the event of a sale they are only entitled to the amount borrowed (maybe with some additional fees perhaps?) , any proceeds of the sale above that are yours.

Of course if the sale proceeds don't meet the mortgage then you still owe the mortgage company the difference!

Community Veteran
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Re: Interest only mortgage query

Hmm.... two conflicting "end results" there...

 

Superuser
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Re: Interest only mortgage query

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Re: Interest only mortgage query

@shutter

@MisterW is correct. The charge is "owned" by the mortgage provider. They have a legal right to take that charge from the property. Either you pay them what's owing or they force a sale.

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Re: Interest only mortgage query

I suppose I was "lucky" in that I had my endowment mortgage at the time when interest rates were around 10%. So although rates were high, returns on the endowment mortgage were also high. More than enough to cover it.

My brother though had a long term interest only mortgage. When it came to the end of that he had to sell up as he couldn't afford to pay the outstanding amount. Though house prices had risen so much that after selling he had enough left over to nearly cover the cost of a smaller house.

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Re: Interest only mortgage query

@billnotben

I think there might be some interesting times fairly soon when property prices start to drop and interest rates rise. 

Luzern
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Re: Interest only mortgage query

In general repayment is made from the proceeds of investment (assurance policy, pension lump sum etc). In earlier years, before Interest Only became a common term. Some mortgages were secured by with profits assurance on the projection of the insured sum and bonuses. The 2008 crisis put paid to those projections, and instead shortfalls were forecast, so encouragement was employed to make extra payments or change to a repayment mortgage.  Sometimes the new forecasts were as pessimistic as the originals were optimistic; the assurance policy discharging the mortgage in full.

No one has to agree with my opinion, but in the time I have left a miracle would be nice.
Community Veteran
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Re: Interest only mortgage query

Apologies if my reply was misleading.

I concur with the information given in @MisterW post.

Smiley

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Re: Interest only mortgage query


@nozzer wrote:

@billnotben

I think there might be some interesting times fairly soon when property prices start to drop and interest rates rise. 


That's likely to happen at some stage but the number of houses being built is well below what is needed so are we looking at a major increase in the number of homeless people.

Champnet
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Re: Interest only mortgage query

Thought I was smart in my younger days, we took out a new endownment mortage on all the properties we owned and kept them all going. Turned out to be a financial disaster but we do receive a cheque for 20-30k every few years. This is money we wouldn't have saved. We do have the problem of finding someone to verify there is no claim on the property before we receive the cheque. Seems records are not kept for 25 years.

 

 

idonno
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Re: Interest only mortgage query

@nozzer @MisterW is correct. Either you pay them what's owing or they force a sale.

 

Yep, Was there years ago. One reason I live in a far smaller place now than I did back in 2009. I had no choice for 3 years but to go interest only - lack of cash. Not a good way to try and keep on living as I then was. Should have realised that it was a no win situation earlier and got shot of the property. Technically, when I did eventually sell it I was looking at a £25K loss on 2006 prices. Yes, I did have enough to pay off the mortgage but don't always assume house prices will rise. Fatal mistake.

 

I sold up, lived abroad for a couple of years, came back and bought a house for less than half price - no one was buying. I don't owe anybody, anything. Lesson learned.

 

@shutter If you have an interest only mortgage, make sure you have saved enough to pay off the capital. Otherwise it might be 'goodbye house'.

RobPN
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Re: Interest only mortgage query

Never had one of those types of mortgage myself (I went for repayment type), but have any of those who experienced problems heard of claiming compensation against  'endowment mortgage mis-selling'?

Some Google results here.

idonno
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Re: Interest only mortgage query

@RobPN Yes, been there. Way back in 1988, took out an endowment. Years later, I got a statement. I can recall the phone call to the endowment company. 'I see there's been a loss of £2000 this year, I don't need a 3rd party help in losing money!' I cashed it in and went over to a repayment mortgage, then, as above, times changed and ended up interest only.

 

But quite some years later I received a letter from the endowment company saying that I was entitled to compensation. It was only a couple of thousand £ but better than nothing I suppose.