Interest-only mortgages alert by Finance News Bulletin

Published: 27/03/07

Thousands of homeowners captivating out interest-only mortgages have no idea how they will repay their loan, according to official investigateMORTGAGE TIMEBOMB: Borrowers are taking out interest-only mortgages with no thought how to pay off the debtWhat will occur to house prices in 2007 Read the house prices newest and have your say in our poll >> VoteA report by supervisory body the Financial armed forces Authority has revealed that of the quarter of all borrowers who choose an interest-only homeloan, 10% have no idea or only a rough idea of how they will clear the sum

And the supervisory body questioned how robust the refund strategies of a further 5% were, as their suggestions weere improbable to pay off in timeThe FSA cited examples of borrowers saying they would wait until they were close to retirement before switching to a repayment mortgage, while for others the only plan was to sell the propertyClive Briault, organization director of retail markets at the FSA, supposed: 'There is nothing wrong with interest-only mortgages However, consumers must be very clear about how they are going to repay the loans they take out

Consumers' repayment plans need to be sensible and robust'Consumers should not, for example, assume that home prices will continue to rise at the rate seen in new existence'Experts have raised serious concerns that a growing number of people are taking out interest-only mortgages to keep up with higher home prices and gambling on their home rising in value enough to clear the money owing and leave them with a roof over their skullInterest-only mortgages are cheaper than repayment loans, as the borrower pays off only the interest on the sum borrowed

However, at the end of the loan period the amount borrowed still remains and must be salaried offMortgage companies are no longer obliged to make sure that interest-only borrowers are investing in a suitable repayment vehicleThe FSA's investigate showed that a senior proportion of lower-income homeowners fell into the group of borrowers who had no exact plans for repaying the loan It warned that mortgage companies and advisers should be spelling out the situation to customersThis is Money is crowded with news, advice and tools that can help you get ahead and save cash

Experts say those with an interest-only mortgage should use savings or an asset vehicle such as an Isa or investment finance, to build up the money they need to pay back the debtRay Boulger, of mortgage broker John Charcol, supposed: 'Most people would consider a repayment vehicle to be either an donation policy or an Isa, and perhaps also a component trust savings plan, ie a regular, journal investment into a risk-based investment product

Following the recent issues with endowment mortgages a big majority of borrowers now favor to avoid the higher risk routes to repaying a mortgage'This begs the question of exactly what refund vehicle do lenders have in brain when they recommend that borrowers should have a repayment vehicle nowadays's FSA report should encourage lenders and brokers to think again this type of generic advice and instead of recommending what they believe the regulator wants to hear make a more sensible recommendation'However, any repayment plan that does not involve a regular journal payment by direct debit or standing order requires regulation, which will be a confront for some borrowers

'For these borrowers an interest-only mortgage may be dangerous It is very easy to influence oneself that putting off repaying a mortgage is OK when there are always so many other demands on one's money It is important to be realistic about the mortgage refund plan, both in respect of the method and the timing'It cannot be mi-selling

Clients inquire for this type of mortgage You all know why they are so popular It is a cheap way to get on the accommodation ladder but advisers DON'T go though the correct procedure when dealing with people in this situationIt has to be explained the a variety of methods of repayment

One of the improved solutions is to make over payments to at least start making some capital refund during the mortgage term I for myself always advised this method to those who were determined to buy the damned home anyway It is a better and safer method than sticking it in an investment vehicle to those who are unsure if they could continue to fund the investment means of transportation in later existence Plus the tax benefits

In 10 existence time we will have a repeat of the so-called donation mortgage mis-selling scandal People only look at the good information and ignore the small print - they require to take responsibility for the money they be indebted and understand any risks involved with the mortgage products they selectchoose a loan term 12 months (1 year) 24 months (2 existence 36 months (3 existence 48 months (4 existence 60 months (5 existence 72 months (6 existence 84 months (7 existence 96 months (8 existence 108 months (9 existence 120 months (10 existencePlease select a type of insurance Life insurance Home and contents Car Breakdown armed forces Health - medical Health - dental journey Pet - dog

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