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TheCountOfNowhere

Should I Get An Io Mortgage So I Can Complete With The Blters

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It struck me today that some people must think like this, i.e.

"Should I get an IO Mortgage so I can complete with the BLTers"

Hopefully IO mortgage sare off the table for buyers but I wouldnt put it past a lot of people getting BTL mortgages then moving in themselves !!!

If you look at the wisdom of this then you are renting off the banks rather than a land lords.

You can't be evicted, you can be repossessed and bankrupted.

You do all the upkeep.

You are well and truly f**ked after 25 years if wages dont go up or you can't pay the mortgage back. Hey, sure you can sell and settle the mortgages with your free gifted equity, but what they....you'll have to rent :lol:

You do get to think you can keep that forever rising free equity though......until it all collapses.

I do wonder if people have been doing this.

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Has been mentioned here in the past as the 'new liar loan'. Dunno to what extent it occurs (probably more than is appreciated, on past form..) and what measures a lender takes to guard against it.

The offered rates are typically much higher than for owner occupier borrowing so it's not necessarily a no-brainer boondoggle, aside the small matter of breaching the terms upon which the mortgage was granted..

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IO Mortgages are a great way to make property more affordable by never paying it off.

Personally, I've had an IO (offset) mortgage in the past and it was great if you can control your money.

I don't think I would qualify now as they are quite strict and also the rates seem to be a bit higher than repayment mortgages and with low interest rates, the repayment is a better option.

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Really to keep the money supply elevated in the economy they should really try and move everyone to interest only force everyone to become banker slaves

Haven't they done that already?

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The lower interest rates are, the higher the upfront monthly capital payments are on a repayment mortgage.

It makes me laugh when the Bank keeps rates low "to get credit into the economy". I don't think they understand how the repayment profile between interest and capital changes with interest rate levels. Ultra low rates are literally eating away at the capital outstanding on mortgages. They have to run extremely fast to stop it shrinking at these rates.

(Note: the capital amount rises because the overall flat payment falls with lower interest rates,,,,which means more of the capital repayment is front loaded)

Really to keep the money supply elevated in the economy they should really try and move everyone to interest only.

Surely, as the capital outstanding declines so does the lender's liability enabling them to create new mortgages against the same reserves?

Edited by zugzwang

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Yes. But it is harder to do new lending than it is just sitting around on the books.

Indeed, the security of existing lending has historically improved markedly over time - but now they have the risk of a new payer and higher asset prices.

More lending equals higher risk, naturally. Everything else being equal.

A price worth paying, I guess, if your economic model based around perpetual hpi.

Edited by zugzwang

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